Description
MCA funding is unlike traditional forms of receivables financing and raises thorny issues both in and out of bankruptcy. Under an MCA agreement, the merchant "purchases" or advances a lump sum in exchange for a percentage of the debtor-seller's future sales revenue. The advance usually bears an extremely high interest rate, and is repaid, along with fees, daily or weekly over a short time.
Bankruptcy courts do not hesitate to recharacterize MCA transactions as loans, with all the attendant consequences to both the purchaser-lender and the seller-debtor. The critical question is which party bears the burden of non-payment of the receivable, and courts have reached different conclusions on similar facts. Additionally, MCA funding has come under scrutiny from state regulatory agencies and even the Federal Trade Commission.
MCAs can present numerous issues in bankruptcy on everything from eligibility, cash collateral, lien avoidance, post-petition financing, avoidance actions, and discharge. Although Article 9 applies, in the MCA agreement, the debtor purports to sell receivables that do not exist and in which it has no present rights. Priority disputes with traditional lenders or with other MCAs can also arise.
Listen as this panel of bankruptcy lawyers offers guidance to practitioners encountering MCAs.
Presented By
Ms. Falabella's practice focuses on providing comprehensive representation to debtors, creditors, and chapter 7 trustees throughout the bankruptcy process. To complement this, she is also highly skilled in advising clients regarding financial restructuring. Additionally, Ms. Falabella's practice includes corporate litigation, contracts, licensing agreements, and creditors' rights.
Mr. Williams is a partner in the Financial Services and Restructuring Group. He assists debtors, creditors, creditors’ committees, and purchasers of assets in bankruptcy courts throughout the nation. He represents purchasers and sellers in out-of-court restructurings and distressed asset sales. He also has experience in general commercial litigation matters, with substantial experience prosecuting and defending large preference and fraudulent transfer actions in bankruptcy cases. Mr. Williams has represented debtors in courts nationwide and confirmed plans in the United States Bankruptcy Courts for the Central District of Illinois, Northern District of Illinois, and Central District of California.
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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Date + Time
- event
Thursday, September 11, 2025
- schedule
1:00 p.m. ET./10:00 a.m. PT
I. Why MCA funding is attractive to some debtors
II. How MCA differs from traditional loans
III. Characterization as true sale or loan
IV. Bankruptcy treatment of MCA in bankruptcy
A. Property of the estate
B. Cash collateral
C. Automatic stay
D. Post-petition receivables
E. Eligibility
F. Executory contract issues
G. Avoidance actions and preferences
H. Discharge
I. Priority disputes
J. Claim allowance and objection
The panel will review these and other significant issues:
- How do MCAs differ from factoring or traditional ABL?
- On what basis will courts recharacterize an MCA as a loan?
- Does the MCA lender hold an interest in property of the estate?
- Does the MCA lender hold a claim?
- Is the MCA lender vulnerable to preference claims?
