By Richard E. Weltman and Melissa A. Guseynov

RECENT SUCCESS STORY - Zealous Advocacy Secures Payment in Full for Client in A&P Chapter 11 Cases By Richard E. WeltmanWhen creditors learn that an entity that owes them money has filed for bankruptcy protection, they often fear their claims will remain unpaid or that they will only collect pennies on the dollar. And while that is typically the outcome for unsecured claimants, in certain circumstances creditors may be able to recover a substantial portion of their debt. In fact, as further described below, with effective counsel, a creditor may recover its claim in full.

On July 19, 2015, The Great Atlantic & Pacific Tea Company, Inc. (“A&P”) and twenty affiliated debtors (collectively, “Debtors”) each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York, before the Honorable Judge Robert D. Drain.

Our client, pursuant to a certain management agreement, acted as A&P’s agent to secure and administer services for the preparation, collection, transportation, recycling, reuse and disposal of non-hazardous solid waste, and held a substantial unsecured claim upon the debtors’ bankruptcy filing. Our client informed us that representatives of the debtors indicated that it would be deemed a critical vendor of the debtors in the bankruptcy. Ordinarily, critical vendor status is coveted because they are typically paid all or a substantial portion of their pre-petition claim. General unsecured creditors, on the other hand, receive pennies on the dollar, if anything at all.

We immediately prepared the necessary documents in accordance with the debtors’ proposed critical vendor protocol and contacted the debtors’ counsel to negotiate critical vendor status. Ultimately, the debtors’ counsel backed away from providing critical vendor status due to, among other things, lack of remaining earmarked funds and issues relating to whether critical vendor status could be given in its current form to a vendor with multiple contract counterparties.

Rather than accepting the debtor’s decision, we closely examined other alternatives for our client. Sometimes outside-the-box thinking can be used to turn what appears to be a hopeless objective into a winning outcome. With that in mind, we successfully negotiated with the debtors’ counsel for an assumption by the debtors of the management agreement. Pursuant to section 365 of the Bankruptcy Code, assumption of an executory contract required the debtors to pay our client’s pre-petition claim in full.  

Given the debtors’ store sales and closings, we worked quickly with the debtors to modify the terms of the management agreement. After the bankruptcy court approved the order, the debtors cured their pre-petition default in full. The post-petition amounts due to our client continue to be paid by the debtors in the ordinary course of business. The added “bonus” for our client was that by assuming the agreement, the debtors effectively waived any “preference” claim they might have had. This would not have been the case had critical vendor status been approved.

The A&P bankruptcy cases illustrate how, with persistent and creative advocacy, a creditor can receive satisfaction of its claim in full, even without obtaining critical vendor status.

Richard Weltman & Michael Moskowitz |

About Weltman & Moskowitz, LLP, A New York and New Jersey Business, Bankruptcy, and Creditors’ Rights Law Firm:

Founded in 1987, Weltman & Moskowitz, LLP is a highly regarded business law firm concentrating on creditors’ rights, bankruptcy, foreclosure, and business litigation. Richard E. Weltman, a partner with the firm, focuses his practice on business and bankruptcy litigation, as well as shareholder disputes, creditors’ rights, foreclosure, adversary proceeding litigation, corporate counseling, M&A, and transactional matters. Richard may be reached at (212) 684-7800, (201)794-7500 or Melissa A. Guseynov is an associate.