Charter Communications, the nation’s fourth largest cable company, filed for bankruptcy on March 27th. In today’s economy, it behooves E-rate applicants to pay attention to their suppliers. In Charter’s case, the company is expected to continue to operate, but this may be an appropriate time to review how BEAR payments flow through a bankrupt company.

BEAR payments made by USAC are paid directly to the service providers who, in turn, are then supposed to pass on the payments to the applicants. The issue is what happens if USAC sends a BEAR payment to a vendor that becomes bankrupt before the payment can be relayed to the applicant. SLD tries to avoid sending BEAR payments to a bankrupt vendor unless and until the specifics of the vendor’s situation are clarified. Generally, in a Chapter 11 bankruptcy, under which a company continues in operation, BEAR payments can be processed normally. Even in these cases, however, the SLD requires a formal letter from the vendor attesting to its ability to pass on E-rate payments.

In a Chapter 7 bankruptcy, involving company liquidation, the problem is more difficult. If a BEAR has not been submitted, the best procedure is to use a “Good Samaritan” company to receive and pass on the payment. If a BEAR payment has already been sent to a company, however, the trick is to avoid having the funds tied up in a bankruptcy proceeding with the applicant simply becoming another unsecured creditor. Although the specifics of each situation may take some time to resolve, the good news is that the few related court decisions to date have all affirmed that BEAR payments belong to the applicants, not to the companies that are merely passing them along. Applicants receiving discounted bills for a bankrupt supplier that is continuing to provide services should be fine.

(From E-Rate Central News for the Week. April 6, 2009)