Recently, over 180 adversary actions were filed in the MPC Computers bankruptcy.  The adversary actions fall generally in to two categories – preference actions filed by MPC’s Committee of Unsecured Creditors and breach of contract actions filed by MPC.  This post will look briefly at why MPC filed for bankruptcy and discuss what may happen next now that the adversary actions are underway.

Background on the MPC’s Business and Events Leading to Bankruptcy

As reflected in the declaration of MPC’s CFO,  Curtis Akey,  MPC (formerly Gateway) provided 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).  MPC-Pro, LLC acquired Gateway in October of 2007.  As a result of this acquisition,  MPC’s revenue rose to $895 million.  Six months after the acquisition, the company decided to stop manufacturing at its Tennessee facility and outsource a substantial portion of manufacturing to Flextronics at its Juarez, Mexico facility.

The Flextronics’ facility came on line slower than planned and with limited production.  On October 28, 2008, Flextronics informed MPC that it was discontinuing its supply of products and services to MPC.  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.

The Adversary Actions

According to the adversary complaints filed by MPC’s Creditors’ Committee, the Committee and MPC entered into a stipulation on October 12, 2010.  The stipulation appoints the Committee as representative of MPC and confers standing on the Committee for purposes of investigating and prosecuting avoidance actions under chapter 5 of the Bankruptcy Code.  Judge Walsh, the bankruptcy judge presiding over the MPC bankruptcy, approved the stipulation on October 21, 2010.

Unlike the preference actions, the breach of contract actions are brought directly by MPC (versus the Creditors’ Committee).  Through these actions, MPC alleges various defendants received goods from the Debtors which were never paid for.

Given the size and frequency of bankruptcy filings in Delaware, judges in the Delaware Bankruptcy Court often (but not always) enter uniform scheduling orders that provide parties with similar dates to serve discovery, complete motion practice, etc.. Scheduling orders in preference actions usually allow the parties 90 to 120 days to complete fact discovery and require the parties participate in mediation.  Click here to review a copy of one of the form scheduling orders posted to the Delaware Bankruptcy Court’s web page.

The MPC bankruptcy, including the adversary actions, are before Honorable Peter J. Walsh.  Judge Walsh is the former Chief Judge of the Delaware Bankruptcy Court.  MPC is represented by Reed Smith LLP and the Creditors’ Committee is represented by Drinker Biddle and Reath LLP.