Credit managers cope with tough climate
FMCA offers education on bankruptcy, risk
By Clint Engel -- Furniture Today, June 15, 2008
CONCORD, N.C. — Tough business conditions were on the minds of industry credit managers here during the Furniture Manufacturers Credit Assn.'s May Educational Conference.
With session topics like “I Have a Bankruptcy! How Did I Get There and What Do I Do Now?” and “Making the Sale but Reducing the Risks,” the group delved into various ways to make the most of what some say is the most difficult environment they have faced in the furniture industry.
David Conaway, an attorney with Shumaker, Loop & Kendrick in Charlotte, N.C., reminded attendees of the warnings signs that precede bankruptcy filings. These include cash shortages, the frequent need to renegotiate bank covenants and fully drawn credit lines.
On the operations side, one of the warning signs is unsuccessful or “questionable acquisitions that don't really make sense.” Hiring a turnaround consultant is rarely a good sign, either, as Conaway called this “somewhat of a self-fulfilling prophecy.”
In a session on avoiding risk with new accounts, attorney Scott Blakeley, of Blakeley & Blakeley in Newport Beach, Calif., went through items to consider including on credit applications as well as obstacles to look out for, including how much information suppliers share with each other when they discuss a retailer's credit history with other suppliers.
Suppliers are allowed to report factual information on a retailer's pay history, but they have to be careful, Blakeley said. “What we think is an innocent comment might be viewed as restraint of trade,” he said.
He also urged creditors here to get debtors' guarantees notarized or witnessed is to avoid disputes later on, should a store principal argue that it's not his signature.
Also at the meeting, FMCA Executive Vice President Jim Bumgarner talked about the collection services FMCA provides to it members.
Adrienne Murphy, director of customer financial services for Sandberg, led a two-part roundtable to discuss the day-to-day situations that confront credit managers and issues of credit policy and procedures.
Dave Carpenter, director of credit for La-Z-Boy-High Point, brought up preference claims, a chronic problem for industry suppliers. Preference claims involve the payments creditors receive from debtors in the 90 days prior to a bankruptcy filing. These amounts are often taken back by the debtor through litigation long after the retailer has liquidated.
The idea behind preference recoveries is to recall the money for fair redistribution to creditors, including unsecured creditors, but Carpenter and others argue this rarely happens.
“We are finding that more monies from this pot are actually going to pay lawyers to pursue more preference claim lawsuits,” he said. “It has become a bankruptcy litigator's employment fund.
“I wish somebody would conduct a survey that calculates total preference claims recovered by bankrupt estates and compare that to the dollars returned to the unsecured creditors. I would estimate the percentage returned is less than 2%.”
Carpenter said that many in the industry are still wrestling with preference litigation surrounding former Atlanta-based retailer Rhodes, which filed for bankruptcy in November 2004 and was out of business soon after.
Bumgarner said he was pleased with this year's educational conference and said the industry's tough business conditions have created interest in FMCA membership.
“Manufactures and importer of furniture realize a need to belong to an organization like FMCA to gain additional education and avoid costly credit pitfalls,” he said. “FMCA has always been an industry leader for credit education, information and collections.”
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Credit managers cope with tough climate
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