Issues Important to Gateway’s Creditors:  The Critical Vendor Motion

MPC Computers, LLC, formerly Gateway Computers ("Gateway, or the "Debtors"), filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on Thursday, November 6, 2008.  In addition to filing its chapter 11 bankruptcy petition,  the Debtors filed various first day motions with the Court.  Included among Debtors’ initial motions is a motion authorizing Debtors to pay pre-bankruptcy claims of "certain critical vendors."  (Read Gateway’s critical vendor motion here)

Gateway’s critical vendor motion seeks important protections for selected vendors.  Those creditors chosen to participate in the vendor program will receive payment for their pre-bankruptcy  claims.  In exchange for receiving payment, the vendors must agree to continue to supply goods or services to the Debtors under terms similar to those provided to the Debtors before bankruptcy.  However, the Debtors reserve the right to negotiate better trade terms with a critical vendor as a condition to payment.

Some of the key terms of Gateway’s critical vendor program include:

  • Critical vendors and the Debtors shall work together to determine in "good faith" the amount of the critical vendor’s prepetition claim;
  • Critical vendors agree to be bound by the agreed upon trade terms so long as the Debtors do not default under such terms; and,
  • Critical vendors agree not to assert reclamation claims.

Background on the Debtors’ Business and Events Leading to Bankruptcy

As reflected in the declaration of Gateway’s CFO,  Curtis Akey,  Gateway provides computer-based products and services to mid-sized businesses, government agencies and educational organizations (read here the Declaration of Gateway’s CFO in Support of Debtors’ Chapter 11 Petitions).  Since October 1, 2008,  Gateway has reduced its workforce from 900 to 340 employees. 

MPC-Pro, LLC acquired Gateway in October of 2007.  As a result of this aquisition,  the Debtors’ revenue rose to $895 million.  Six months after the aquisition, Debtors decided to stop manufacturing at their Tennessee facility and outsource a substantial portion of its manufacturing to Flextronics at its Juarez, Mexico facility.  The Flextronics’ facility came online slower than planned and with limited production.  On October 28, 2008, Flextronics informed the Debtors that it was discontinuing its supply of products and services to Debtors.  As stated in the Akey Declaration, MPC’s purchase of Gateway, followed by the unsuccessful outsourcing to Flextronics and the overall lack of liquidity led to the present bankruptcy filing.

Ten Largest Unsecured Creditors

Flextronics Logistics … $24.6 million
Flextronics Latin America … $22.7 million
Microsoft … $11.9 million
Arima Photovoltaic … $7.2 million
Quanta Computer … $7.0 million
Intel Americas … $5.6 million
Document Storage Systems … $3.8 million
EliteGroup Computer Systems … $3.6 million
Quanta Service Nashville … $3.2 million
Transgroup … $1.9 million

Affiliated Debtors

MPC Corporation
GTG PC Holdings, LLC
MPC Computers, LLC
MPC Solutions Sales, LLC
Gateway Pro Partners, LLC
Gateway Professional, LLC
Gateway Companies, Inc.

Bankruptcy Case Information

This bankruptcy proceeding is before the Honorable Peter J. Walsh, former Chief Judge of the Delaware Bankruptcy Court.  Some of Judge Walsh’s more recent opinions include:  In re Grossman’sIn re American Remanufacturers,   and  In re NVF