Emory Bankruptcy Developments Journal


There is little hope for a retailer’s successful chapter 11 reorganization without a supply of inventory from vendors. Without a codified legal test for critical vendor payments, vendors may be fearful to continue supplying inventory to a retailer’s bankruptcy estate. This Comment demonstrates that not only are vendors fearful to engage with the retailer’s bankruptcy estate, but their fear also undermines reorganization efforts. These effects are amplified in the current retail climate, which has been plagued by an onslaught of chapter 11 bankruptcies. Vendor fear in the current retail climate is a catalyst for a critical vendor codification solution. Critical vendor payments are a widely adopted practice in the bankruptcy system but completely lack codification within the Bankruptcy Code. Though existing common law tests provide some guidance, the lack of uniformity across judges and jurisdictions has cultivated the current chaotic critical vendor standard. This Comment surveys the application of and discrepancies between existing critical vendor tests by judges in prominent jurisdictions including Illinois, Texas, Virginia, Delaware, and New York. This Comment proposes a test for codified clarity of critical vendor payments hoping to alleviate vendor fear and bolster the chances of a retailer’s successful reorganization.