Don’t Cry Over Spilled Milk! Borden Dairy Files For Bankruptcy Protection.

For years, Americans have been turning to alternative “milks”–such as soy milk, coconut milk and nut milks–and away from dairy milk.  Sales of dairy milk plummeted.  Thousands of dairy farms have gone out of business.  In a sour twist, while sales dropped, the cost of raw milk rose.  The Borden Dairy Company, a 163 year old milk producer, found itself in the cross-hairs of this phenomenon and saddled with too much debt.

In an effort to reorganize, on January 5, 2020, Borden filed for bankruptcy relief.  On the same day, Borden asked the bankruptcy court for permission to pay the pre-bankruptcy claims of its “critical vendors.”  Borden wanted the unfettered right to:

  • Designate which creditors provide goods or services that are necessary for Borden’s continued operation and that it cannot readily replace or buy from another vendor;
  • Pay up to the full amount owed to those creditors; and
  • Leave the remaining unsecured creditors to recover possibly pennies on the dollar at some later time, if ever.

Three days later, the bankruptcy court granted Borden’s “first day motion” on an interim basis, and with some limitations.  Now may begin a stampede of creditors to convince Borden that they should be designated as “critical vendors.”

The creditors that fail in this pursuit could try to challenge the entry of a final “critical vendor” order.  After all, the full payment to some, but not all, creditors goes against the Bankruptcy Code’s general scheme of treating like creditors equally.

Unsecured creditors also may evaluate their right to assert a claim under Section 503(b)(9) of the Bankruptcy Code.  That statute prioritizes certain claims for “the value of any goods received by the debtor within 20 days before [the bankruptcy was filed] … [if] sold to the debtor in the ordinary course of [the] debtor’s business.”  That priority designation can enhance a creditor’s distribution and would not require Borden’s approval.

Creditors should not ignore their rights, or ignore the case.  As the “first day” motion practice demonstrates, the bankruptcy court can decide significant matters quickly and without the input of all stakeholders.


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