When a company files for Chapter 11, the goal is rarely liquidation. Most of the time, it’s about survival and reorganization.
But even when the intent is positive, the uncertainty that follows can cause real damage. It used to be that Debtors’ access to Debtor-in-Possession financing reassured vendors that they would get paid. But after cases like Toys ‘R’ Us, Big Lots, and Rite-Aid, where vendors who provided post-petition goods or service did not get paid in full, vendors have become more reluctant to do business with debtors. At the same time, debtors struggle to reassure suppliers that their business is stable enough to rely on in order to give essential credit terms.
That impasse can cripple a restructuring before it even begins and cause vendors to lose customers they might otherwise have retained.
That impasse can cripple a restructuring before it even begins and cause vendors to lose customers they might otherwise have retained.
The growing problem of Administrative Insolvency was highlighted in a recent article published by Bloomberg Law: “Vendors Must Beware of Administrative Insolvency in Chapter 11”.
CRG Financial has been following this alarming trend and has real solutions. Just weeks before the Bloomberg article, we published “How to Keep Doing Business With Customers In or Even After Bankruptcy Without Risking Receivables.” That post explained how vendors can safely continue doing business with bankrupt customers.
Understanding Administrative Insolvency
Administrative insolvency is a technical term that describes a very practical problem. When a company enters Chapter 11, it’s allowed to keep operating while it restructures. Its ongoing bills—things like post-petition vendor invoices, payroll, rent, and professional fees—are classified as “administrative expenses.” Because they arise after the filing, these obligations take top priority in repayment.
In theory, that sounds safe. In practice, it often isn’t. If the debtor’s available cash runs short, those high-priority expenses can’t be paid in full. Vendors who believed their post-petition invoices were guaranteed may find themselves waiting months for partial payments, or in some cases, receiving little to nothing at all.
This is called “Administrative Insolvency.” And it’s becoming more common as large cases stretch longer, and operational costs and professional fees rise.
Why It Hurts Both Sides
With Administrative Insolvency, everyone loses. Vendors see cash-flow interruptions that can threaten their own operations. Debtors, on the other hand, find themselves facing a shrinking pool of willing suppliers. As confidence erodes, shipments slow, credit terms tighten, and the entire reorganization effort becomes more fragile.
For vendors, this risk feels personal—it’s their product, their services, and their receivables on the line. For debtors, it’s operational—the inability to secure necessary goods and services jeopardizes the ability to function. What’s meant to be a structured recovery process can quickly turn into a liquidity crisis for all parties involved.
Liquidity and Confidence for Both Sides
This is exactly why CRG Financial created Chapter Advance. It’s a financing solution designed to restore trust and keep business flowing, even in the uncertain environment of Chapter 11.
Through Chapter Advance, CRG Financial provides immediate liquidity against approved receivables that are owed by distressed or bankrupt companies. Vendors gain the ability to continue supplying their customers without the fear of non-payment. They receive cash now, rather than waiting for weeks or months.
For debtors, the benefit is just as clear. With vendors confident they’ll be paid through CRG’s program, suppliers remain engaged, goods keep moving, and operations stay intact. That stability can be the difference between a successful reorganization and a failed one.
Building Confidence in Chapter 11
Consider a mid-sized manufacturer supplying essential parts to a customer that has just entered Chapter 11. In most cases, that vendor would stop shipments until payment was guaranteed—halting the debtor’s operations at a critical moment.
With an advance payment on those receivables, business continues uninterrupted. The vendor protects its cash flow. The debtor maintains its supply chain. Both avoid the breakdowns that Administrative Insolvency so often creates.
It’s a real-world example of how liquidity solutions can preserve operations and restore trust in a restructuring.
The real challenge in Chapter 11 isn’t always cash—it’s confidence. Vendors hesitate because they doubt they’ll be paid; debtors struggle because they can’t regain supplier trust. By injecting liquidity into the process, CRG Financial’s Chapter Advance replaces that uncertainty with reliability.
References
- Bloomberg Law: “Vendors Must Beware of Administrative Insolvency in Chapter 11” — Kenneth A. Rosen, Oct 2025