Supply Chain Rights and Remedies Under the UCC: Adequate Assurance, Stoppage of Delivery, Reclamation in Bankruptcy

Suppliers of goods have various rights and remedies to minimize risk and maximize recovery when selling to financially troubled customers. While these options are helpful under normal circumstances, the current COVID-19 environment will present extraordinary challenges throughout the supply chain, including customers--both large and small--that warrant extra attention from suppliers. UCC Article 2 offers certain protections that apply to all contracts involving the sale of goods, even if not in the contract or purchase order terms.

Upon reasonable grounds for insecurity, a seller can demand adequate assurance of performance from a financially distressed buyer before proceeding with delivery. Article 2 also permits a seller of goods, upon discovering that its buyer is insolvent while the products are in transit, to stop delivery of those goods.

After goods are delivered, the seller the right to recover possession of products sold to a buyer that the buyer received while insolvent or within 10 days before filing for bankruptcy. Counsel must understand the nuances of these remedies and the notice and demand requirements associated with each.

The current sudden shutdown of various businesses due to COVID-19 presents unique challenges impacting the entire supply chain. The leverage one supplier utilizes against its customers might similarly be used by the supplier's suppliers. Suppliers may want to seek ways to balance risk mitigation with the desire to help the customer survive its current financial distress so a business relationship can be maintained going forward.

Listen as our authoritative panel discusses the remedies available to suppliers concerning insolvent or financially distressed buyers, and factors to consider in the current economic environment.