The dispute that has flared between Performance Sports Group Ltd., which is mired in a Chapter 11 proceeding, and Oakley Inc. points out the many problems and pitfalls facing creditors and counterparties to agreements when faced with a customer’s Chapter 11 filing. Given the significant number of retail filings of late, this should be a call to arms for the unwary.
When a business entity enters Chapter 11 protection under the Bankruptcy Code, even if it plans to liquidate or is forced to liquidate as opposed to reorganizing, it is designated as a debtor-in-possession, which among other things gives the debtor entity the powers of a bankruptcy trustee. Allowing the debtor-in-possession to wear many hats and take sometimes contradictory positions places creditors and counterparties to agreements in the position of a duck in a 360-degree shooting gallery.
