As a result of the economic downturn, lenders and vendors are increasingly finding themselves becoming parties to bankruptcy proceedings involving a corporate liquidation or reorganization in the bankruptcy courts. The retail clothing and jewelry industries have been particularly hard hit over the last year, and we have seen various significant bankruptcies.
In In re Whitehall Jewelers Holdings, Inc., et al , 2008 WL 2951974 (Bankr. D. Del., July 28, 2008), the debtor and a group of consignment vendors engaged in motion practice concerning the status of consignment goods sold by the vendors to the debtor pursuant to consignment agreements and Uniform Commercial Code filings. The debtor claimed that it had the ability to sell consignment goods over the objections of the vendors/creditors pursuant to 11 U.S.C. Section 363 (b) and (f). The resulting decision by the court denying the debtor’s motion to sell the consignment goods free and clear of liens highlights the benefits vendors should receive when selling goods pursuant to properly documented consignment arrangements, including written consignment agreements and Uniform Commercial Code financing statements.
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