Publishers warned over US distribution

Independent UK publishers have been warned to exercise extreme caution when signing US distribution deals, Joel Rickett writes. Recent changes in US law left British companies, including Kogan Page, facing heavy losses after their US distributor filed for bankruptcy.</p><p>
The publishers are facing a prolonged court battle to retrieve cash and stock from LPC, the US book distributor, which filed for Chapter 11 bankruptcy last month after backer American National Bank (ANB) withdrew a loan.</p><p>
Now ANB, and the distributor's parent company Bank One, have filed a claim in a Connecticut bankruptcy court for $1.2m in cash receipts which had been earmarked for LPC's publisher clients. The claim says they have "superior rights" to the books, as well as the proceeds from their sale.</p><p>
The claim exploits recent changes in US law which mean that standard distribution contracts are not sufficient to prove publishers' ownership of their stock. Now companies must sign a one-page UCC1 financing statement to "register their interests" at state level.</p><p>
In a recent case in the music industry, independent UK labels lost stock after the liquidation of distributor Valley Media. A US court ruled that the stock could be sold off at auction to pay back debtors.</p><p>
Rob Johnstone of music publisher Chrome Dreams--which uses LPC--said: "Every publisher assumes that the stock is theirs in such cases. But these banks are now claiming that all the stock should be sold off and used to pay the debt."</p><p>
Kogan Page is the largest UK publisher affected by the dispute. Although most of its US business--including its education and training lists and Earthscan imprint--is handled through another US distributor, Stylus, it is owed between &#163;50,000 and &#163;100,000, with "tens of thousands" of books at LPC's warehouse. </p><p>
"Our lawyers suggest that there are some caveats to the new law that we can exploit to our advantage," said KP finance director Gordon Watts. "But we wish we'd known [about the UCC1] two months ago."</p><p>
LPC also handles US distribution for a clutch of small UK publishers including Crown House, Noir Publishing and Survival Books.</p><p>
LPC filed information about its assets and current trading with the court last Friday (17th May). The full case, scheduled for the end of August, will centre on whether the bank knew that the books in question were consigned goods. The bank claims the publishers' failure to file the UCC1 meant creditors were not notified of that fact.</p><p>
All of LPC's publishing clients--which total more than 85--have been added to the suit as defendants. Many will fight the case together through a single attorney.</p><p>
LPC continues to trade, but some publishers are reassessing their contracts with the company.</p><p></p>