Bankruptcy Executory Contract Rejection Damages: What You Need to Know
When a company declares bankruptcy, one of the most significant issues that arise involves executory contracts. These contracts are agreements in which both parties have ongoing obligations, and they often include leases, service contracts, and supply agreements. The bankruptcy court has the power to decide whether these contracts should be assumed, rejected, or assigned to another party.
If the contract is rejected by the debtor in possession, the non-debtor party must file a claim for damages. The damages can be significant and can include lost profits, costs incurred to replace the contract, and other damages resulting from the breach of the contract.
Calculating Damages
Calculating damages for a rejected executory contract can be a complex process and often requires the assistance of financial experts. To determine the amount of damages, the non-debtor party must establish the value of the contract, the costs incurred as a result of the breach, and the amount of profits lost due to the rejection.
Valuing the contract involves assessing the value of the goods or services provided under the contract and the length of time remaining on the contract. The non-debtor party should also evaluate the market value of the goods or services in question to establish the contract`s fair market value.
The costs incurred as a result of the breach can include any expenses associated with finding a substitute for the contracted goods or services. These expenses can include advertising costs, legal fees, and any costs incurred to terminate the original contract.
Finally, the non-debtor party will need to determine the amount of profits lost as a result of the contract`s rejection. This calculation will require an analysis of the business`s financial statements, including revenue and expenses for the period in which the contract was in effect. Additionally, the non-debtor party will need to consider the projected profits for the remainder of the contract`s term.
Getting Assistance
If you are a non-debtor party facing damages as a result of a rejected executory contract, it`s crucial to consult with an attorney experienced in bankruptcy law. Your attorney can help you navigate the complexities of the bankruptcy process and assist you in calculating the damages owed to you.
In addition to legal assistance, you may need to work with a financial expert to establish the value of the contract, calculate damages, and provide expert testimony in court. Your attorney can help you identify the right experts to work with and ensure that all necessary documentation is filed with the court.
Conclusion
When a company declares bankruptcy, the rejection of an executory contract can result in significant damages for the non-debtor party. However, with the assistance of an experienced attorney and financial experts, you can ensure that your rights are protected and that you receive the compensation you are entitled to receive. If you are facing a rejected executory contract, don`t hesitate to seek out professional assistance.
