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Clothing retailer trapped in involuntary bankruptcy

Most residents of Rockland County, New York, view the filing of a bankruptcy petition as the voluntary act of someone who is buried in unmanageable debt. Occasionally, however, a person or company may be forced into a bankruptcy proceeding by a creditor who files a petition for involuntary bankruptcy. The impending involuntary bankruptcy of a retailer of upscale resort wear provides an excellent opportunity for exploring this relatively unfamiliar form of business bankruptcy.

Calypso St. Barth was founded in 1992 and once had stores in Paris, Palm Beach, New York City and Santa Monica. It sold simple dresses for $850 and tee shirts starting at $95, and it was favored by a number of high fashion celebrities. On November 1, 2017, six of Calypso St. Barth's creditors filed a petition requesting involuntary bankruptcy based on the allegation that the company has not been paying bills for over a year.

An involuntary bankruptcy proceeding can be started by one or more creditors of the debtor who meet certain eligibility requirements. The creditors must have a non-contingent claim against the debtor in an amount in excess of $15,325 and must be able to demonstrate that the debtor is generally not paying its debts as they become due. A single creditor can file an involuntary petition if the debtor has fewer than 12 qualifying creditors, but three are required if the debtor has 12 or more creditors. Most debtors will use every resource at their command to resist an involuntary petition. If the court finds that the creditors who filed the petition meet the statutory criteria, the court will open a bankruptcy proceeding under either Chapter 7 or Chapter 11. At that point, a trustee is appointed to take charge of the proceeding.

The success of an involuntary petition or a defense to an involuntary petition depends to a large extent on the outcome of the initial hearings before the court on the questions of whether the creditor qualifies and whether the debtor is "generally not paying" its debts. The assistance of legal counsel in these early stages virtually mandates at least a consultation with a knowledgeable bankruptcy lawyer to review the facts of the case and potential defenses.

Source: New York Post, "Calypso St. Barth faces vendor petitions in bankruptcy court," Lisa Fickenscher, Nov. 1, 2017

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