Factored Receivables, Credit Insurance and Letters of Credit in the Forever 21 Preference Lawsuits

Quick Answer

Apparel vendors often did not receive Forever 21’s money directly or carry the credit risk alone. Many sold their receivables to a factor, bought trade credit insurance, or were paid through a letter of credit. Each of these arrangements can change who the proper defendant is, what defenses apply, and who bears the loss in a Forever 21 preference lawsuit filed in the U.S. Bankruptcy Court for the District of Delaware. U.S. and foreign vendors should review these contracts as soon as they receive a demand letter or complaint.

Why This Matters in the Forever 21 Case

Steven Balasiano of MHR Advisory Group, LLC, as Plan Administrator for F21 OpCo, LLC, has filed more than 130 preference lawsuits under In re F21 OpCo, LLC, Case No. 25-10469 (MFW), seeking payments Forever 21 made between December 16, 2024 and March 16, 2025.

Factoring, credit insurance and letters of credit are common in the apparel industry, both in the United States and overseas. When Forever 21’s finances weakened in late 2024 and early 2025, many vendors relied on these tools to manage their exposure. Those same arrangements now shape how each vendor should respond to a preference claim.

Vendors Who Sold Receivables to a Factor

In apparel factoring, a vendor sells its invoices to a factor, and the customer, here Forever 21, pays the factor directly.

• Who received the money. If Forever 21 paid the factor rather than the vendor, the factor may be treated as the party that received the transfer. That can affect whether the vendor, the factor, or both are proper defendants.
• Recourse versus non-recourse. Whether the factor can push the loss back to the vendor depends on the factoring agreement. Under a recourse arrangement, a factor sued for a preference may look to the vendor for repayment.
• Notice provisions. Many factoring agreements require the vendor or the factor to give notice of claims and cooperate in the defense.
• What to do. Send the complaint or demand letter to your factor promptly, review the factoring agreement, and coordinate the defense so that new value and ordinary course arguments are not lost.

Vendors With Trade Credit Insurance

Many suppliers insured their Forever 21 receivables with a trade credit insurer.

• Policy notice requirements. Credit insurance policies often require prompt notice of claims, including preference demands, and may require the insurer’s consent before settlement.
• Coverage for preference claims. Some policies address preference repayments and some do not. The policy wording controls.
• Interaction with prior insurance payments. If the insurer already paid the vendor for unpaid Forever 21 invoices, the insurer may have rights in the vendor’s claim against the estate, which can affect settlement terms.
• What to do. Notify your insurer promptly, provide the complaint and Exhibit A, and confirm whether the insurer must approve any settlement.

Vendors Paid Through Letters of Credit

Some suppliers, particularly overseas factories, were paid through letters of credit issued by a bank.

• Whose money paid the vendor. A payment made by an issuing bank under a letter of credit may be treated differently from a payment made directly from Forever 21’s funds, depending on how the letter of credit was secured and structured.
• Timing and documents. Letters of credit tie payment to presentation of shipping documents, which can help establish the timing of payments and shipments for the vendor’s defenses.
• What to do. Gather the letter of credit, amendments, presentation documents and bank advices for every payment on Exhibit A.

Overseas Suppliers, Trading Companies and Agents

About 50 of the Forever 21 preference lawsuits name companies that appear to be based outside the United States, including garment makers in mainland China, Hong Kong trading companies, and suppliers elsewhere in Asia and the Middle East. These vendors frequently used factoring, letters of credit, deposits and buying agents.

• Agents and trading companies. A trading company or buying agent that only passed money to a factory may argue it was a mere conduit rather than the party that received the transfer.
• Multiple parties, one payment. When a factory, a trading company, a factor and a bank all touched the same payment, it is important to determine early who is the right defendant and who may share responsibility.
• Deadlines still apply. Foreign vendors must respond through a lawyer admitted in Delaware, or working with Delaware counsel, generally within 30 days after the summons was issued. A default judgment can be enforced against U.S. bank accounts and money owed by U.S. customers.

Why Delaware Counsel Should Review These Arrangements Early

Factors, credit insurers and banks each have their own contracts, deadlines and interests. Under Delaware Bankruptcy Local Rule 9010-1, a lawyer not admitted in Delaware must work with Delaware counsel to appear. Our Wilmington office appears directly in the Forever 21 adversary proceedings and can coordinate with your factor, insurer or bank while protecting your defenses and your deadline.

Documents to Gather Now

1. Your factoring agreement and any notices of assignment sent to Forever 21.
2. Your credit insurance policy, endorsements and any claim filed or paid for Forever 21 invoices.
3. Letters of credit, amendments and presentation documents.
4. Remittance records showing who paid whom for each payment on Exhibit A.
5. Your proof of claim, if filed, and records of any assignment of that claim.

Frequently Asked Questions

I factored my Forever 21 invoices. Can I still be sued for preferences?
Possibly. It depends on who received the payments and on the terms of your factoring agreement, including whether the factor has recourse against you.

Does trade credit insurance cover a Forever 21 preference claim?
It depends on your policy. Some policies address preference repayments and many require prompt notice and consent to settlement, so notify your insurer right away.

Were payments under a letter of credit preferences?
Not necessarily. Payments by an issuing bank may be treated differently from direct payments by Forever 21, depending on how the letter of credit was structured and secured.

My company is overseas and used a Hong Kong agent. Who is liable?
It depends on the role each party played. An agent that only passed funds through may argue it was a mere conduit, but the analysis turns on the agency agreement and the payment records.

Should I tell my factor or insurer about the lawsuit?
Yes. Most factoring agreements and credit insurance policies require prompt notice, and late notice can jeopardize your rights.

Speak With a Delaware Bankruptcy Attorney About Your Forever 21 Case

Our Wilmington office represents U.S. and overseas vendors in preference cases directly in the Delaware Bankruptcy Court, with no separate local counsel needed. Kasen Law Group has resolved 75 preference and fraudulent transfer matters with an average claim reduction of 90.8%.

Call (302) 214-0777 for a free consultation. Our office is at 1213 N. King Street, Suite 2, Wilmington, DE 19801. Learn more about our preference litigation practice, or read our guide for overseas suppliers sued by Forever 21.

Delaware Bankruptcy Attorney is a trade name of Kasen Law Group, P.C. This article is general information and is not legal advice. Prior results do not guarantee a similar outcome. Deadlines in a specific adversary proceeding are governed by the summons, any court order and the Local Rules.