Beverage wholesalers face Bang bankruptcy | Strawberry and Forman

Vital Pharmaceuticals, Inc., the company behind Bang Energy beverages, and certain affiliated entities, including Quash Seltzer, LLC, filed for Chapter 11 bankruptcy protection on October 10, 2022 in the District south Florida. Vital Pharmaceuticals, Inc. does business as “VPX Sports” and “VPX/Redline”. VPX has corresponded with many of its distributors regarding its plan to emerge from bankruptcy as a stronger company. The bankruptcy appears to have been the result of a variety of issues, including a nearly $300 million judgment against Bang in a dispute with Monster Energy Co., as well as potential issues with the recent breakdown of distribution between VPX and PepsiCo. Whatever the reason, distributors of Bang products, both non-alcoholic energy drinks and hard seltzers distributed by Quash Seltzer, LLC, may be concerned about any impact to their business.

As part of the bankruptcy filing, VPX sought, and was granted, an interim order allowing it to remain as a “debtor in possession” and received substantial debtor in possession funding (known as “DIP funding”) ) that can be approved by the bankruptcy court. VPX has also filed motions seeking to continue its contracts with shippers and warehousers, as well as to “honor or pay certain pre-petition obligations to their customers” in the normal course of business. These facts may help allay some wholesaler concerns about the continued distribution of products supplied by VPX and its affiliates; however, bankruptcy cases move quickly, react to external market pressures, and are highly dependent on creditor input and involvement.

However, this bankruptcy filing creates certain other problems of which wholesalers should be aware, and contact a bankruptcy attorney is highly recommended. VPX has used a variety of different distribution agreements over the years, including some agreements that Quash Seltzer, LLC has used in connection with the distribution of alcohol products. Typically, soft drink distribution agreements used by VPX provided broad termination rights to VPX when not otherwise limited by state franchise law. Distributors holding agreements with Quash Seltzer, LLC to distribute liquor products generally enjoy greater franchise protection based on state law, although as all wholesalers know, these rights can vary widely from state to state and depending on the specific agreement. There are a few things wholesalers might want to keep in mind at this point:

  • First and foremost, the Bankruptcy Code provides debtors with a “respite” known as an automatic stay. The automatic stay generally prohibits creditors and other non-debtor parties from contacting the debtor to attempt to collect a debt. A breach of this injunction could result in an award of actual and/or punitive damages against you. It is wise for your attorney to contact the debtor’s attorney to avoid any appearance of a stay violation.
  • Distribution agreements can be considered enforceable contracts. Accordingly, VPX shall have the right to assume or reject any distribution agreement as part of the bankruptcy process. In the same petition where VPX seeks to honor its pre-petition obligations to customers, it also seeks permission to “renew, replace, [and] implement new and terminate all existing[,] client practices that they deem appropriate, in the normal course of business, without further recourse to the Court. So there may be changes on the horizon. At this point, however, VPX has not taken any action or indicated its intention to reject any distribution agreement, but wholesalers should pay particular attention to any notices from VPX or the bankruptcy court that they may receive. .
  • While “business as usual” is generally the rule while the debtor in possession retains control, wholesalers may want to contact a bankruptcy attorney to help monitor the bankruptcy case, particularly for any orders or motions that can be filed.
  • Most distribution agreements can claim to allow the wholesaler to terminate the distribution agreement if the supplier files for bankruptcy. This is true of most distribution agreements that have been used by VPX and its affiliates (including Quash Seltzer, LLC). However, these clauses, commonly called “ipso facto” clauses, may be unenforceable in the event of bankruptcy and prohibit a non-debtor party from terminating or modifying a contract. In addition, the automatic stay may prevent a distributor from terminating any agreement without the consent of the Bankruptcy Court or by agreement with the Debtor. Again, this is an issue that wholesalers may want to discuss with a bankruptcy attorney to determine the most appropriate course of action.
  • Additionally, bankruptcy cases have many strict deadlines, one of which is the proof of claim deadline. A proof of claim is filed with the court and outlines a creditor’s request to receive payment in a bankruptcy case. If a creditor fails to file a proof of claim in a timely manner, it could be barred from receiving distributions from the debtor. Currently, the proof of claim deadline is December 19, 2022; however, this is subject to change.

As in many bankruptcy cases, bankruptcy is used to promote an orderly handling of debts, especially a grand jury verdicts. Nevertheless, wholesalers should pay close attention to bankruptcy proceedings until there is greater certainty as to how VPX will operate, both inside and outside of bankruptcy. . This bankruptcy event could result in a reorganization, a sale of VPX’s assets (referred to as a “363 sale”), or a liquidation and winding up of the companies. Filing is only the beginning of the strategy these debtors choose to employ.

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