The bankruptcy trade claim market has become especially dynamic with recent headline bankruptcies of Toys “R” Us and Sears. Notwithstanding the nostalgia that these iconic retailers inspire in many of us, the world has embraced a new reality of one-click shopping. The markets have responded with strong interest in such high-profile corporate bankruptcies, thus creating a vibrant market where bankruptcy claims are bought and sold, either directly between buyer and seller or with the assistance of a broker, and this deserves our attention.
There is an argument to be made that the trade claim market should be automated on an online trading platform, on the basis that this would simplify the transaction process and streamline the documentation. But for sophisticated market players, such action should be considered with due caution. On the one hand, centralized systems do hold the promise of being efficient, cost-effective and potentially equitable to both a buyer and a seller. On the other, current proposals for centralized platforms overlook key legal issues that could leave investors with a worthless claim if the form agreement generated does not sufficiently protect their interests. This article highlights legal issues that may be oversimplified in current platforms and pose significant risks to buyers and sellers. While there are additional types of claims traded in the market, this article will focus on trade claims, also known as vendor claims.
