Protecting Interests if Another Company Files for Bankruptcy Protection

In light of the current economic tsunami, which is certain to throw a few entertainment companies into bankruptcy, this article provides a basic overview of the common issues that arise in connection with such bankruptcies. The most important reason to understand bankruptcy is to protect oneself from the draconian results that can result from a bankruptcy of the other party to a transaction. The U.S. Bankruptcy Code is written so perversely in favor of the bankrupt party that a bankruptcy upsets all reasonable expectations of anyone doing business with that party. Film rights can be lost, payment obligations can be canceled and other contractual obligations can be left in limbo for years. The havoc is so great that it is necessary to plan in advance for the tragic event: “What if the other side goes bankrupt?” For consistency, this article refers to the entity in bankruptcy as the “debtor” and the other party to a contract with the debtor as the “non-debtor.”