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DURA Automotive Systems, LLC Chapter 11 Filing: Overview and Implications for Suppliers

On October 17, 2019, Auburn Hills, Michigan-based company DURA Automotive Systems, LLC and its affiliated companies filed for Chapter 11 bankruptcy protection in Tennessee, with the stated goal of completing an expedited auction-style sale process within the next four months. DURA says that its non-U.S. operations in Asia, Europe, South America, and Mexico are not included in the Chapter 11 cases, and that their operations will continue in the ordinary course.

Despite DURA assurances that "all customer, trade, and employee obligations" will be assumed in the anticipated bankruptcy sale, suppliers face significant risk post-petition both to the collection of their pre-petition claim as well as any continuing supply relationship.

Some suppliers will be hesitant to continue to supply products to DURA other than on a COD basis. Others may refuse to provide additional supply altogether without a deal in place for the payment of their pre-petition debt. To address this, DURA filed a "first day critical vendor motion" to allow it to pay some pre-petition debt to suppliers either on the basis that they are "critical vendors" or they have claims that accrued in the twenty day period pre-petition that have higher priority status (called "503(b)(9) claims"). DURA has a multi-factored test for whether a supplier is a "critical vendor," and will send letters to suppliers that they deem to be in that group. Out of necessity, DURA will also be immediately entering into discussions with some suppliers, including those who refuse to ship needed parts without a deal in place.

© 2020 Varnum LLP


About this Author

Brendan G. Best, Varnum, Chapter 11 Bankruptcy Lawyer, Manufacturing Industry Attorney

Brendan focuses his practice on restructuring, workouts and bankruptcies, representing creditors, debtors and other parties in Chapter 11 bankruptcy cases, out-of-court workouts and restructurings, distressed transactions and general insolvencies. Brendan has a national insolvency practice, serving clients in diverse industries including manufacturing, automotive, building supply and service, energy, oil and gas, health care, food service, gaming, hospitality, construction and real estate.

Brendan serves as outside bankruptcy counsel for clients, advising them on commercial issues...

Michael S. McElwee, Varnum Law Firm, Financial Services and Bankruptcy Attorney

Mike has a multi-state practice focused on debt restructuring and complex commercial litigation. He serves many businesses, but specializes in automotive, agriculture and telecommunications. He also regularly represents health care research facilities, ambulance agencies, and other health care clients. Mike served as a law clerk to the late Honorable David E. Nims, a United States Bankruptcy Judge. Prior to joining Varnum, Mike was an FBI agent working in foreign counter-intelligence.