Involuntary Bankruptcy Petition Upheld: Media Providers' Claims Against Advertising Agency Not Subject to Bona Fide Dispute
Business Credit › Vol. 108 Nbr. 6, June 2006
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Summary
Trade creditors have the power to involuntarily force a business debtor into bankruptcy. However, the requirements for an involuntary bankruptcy, contained in Section 303 of the Bankruptcy Code, create defenses that a prospective debtor could assert in its fight against the bankruptcy. The recent Sixth Circuit Bankruptcy Appellate Panel decision, in In re Marketing and Creative Solutions Inc, addressed whether the claims of the print and broadcast media providers that joined in the filing of an involuntary bankruptcy petition against an advertising agency were subject to bona fide dispute. The court ruled that the debtor/agency had to prove a legitimate factual or legal basis for disputing the petitioning creditors' claims in order to raise a bona fide dispute that would defeat their involuntary bankruptcy petition. The agency could not satisfy this burden. As a result, the court upheld the relief granted on the involuntary petition.
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Involuntary Bankruptcy Petition Upheld: Media Providers' Claims Against Advertising Agency Not Subject to Bona Fide Dispute
Trade creditors have the power to involuntarily force a business debtor into bankruptcy. However, the requirements for an involuntary bankruptcy, contained in Section 303 of the Bankruptcy Code, create defenses that a prospective debtor could assert in its fight against the bankruptcy. Creditors considering joining an involuntary petition should tread very carefully; the potential upside might not be worth the risks. Petitioning creditors face the risk of a huge sanctions claim in the event the Bankruptcy Court dismisses their involuntary bankruptcy petition based upon their failure to comply with the requirements of Bankruptcy Code Section 303.
Petitioning creditors seeking relief on an involuntary bankruptcy petition have to prove, among other things, that their claims are...See the full content of this document
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