Web prepared, posted and Copyright © March 2, 1998, by the American Bankruptcy Institute.
By: Joseph S.U. Bodoff, Chair
The Unsecured Trade Creditor Committee will meet on March 14, 1998 from 3 p.m. to 5 p.m. at the Crystal Gateway Marriott Hotel in Arlington, Virginia. Check in the hotel lobby for the exact location of the meeting. The meeting will be held in conjunction with the National Association of Credit Management's (NACM) Legislative Conference. In what has become a a tradition for the committee, the meeting is expected to include a lively exchange of ideas among hte the lawyers, accountants and credit M managers that attend. This very important meeting traditionally has the greatest attendance by credit managers and helps to set a committee agenda that is relevant to the unsecured trade creditor. All committee members are encouraged to attend this meeting. Feel free to invite others who may be attending the Legislative Conference to join us. Those wishing to register for the Legislative Conference should call NACM at (410) 740-5560. If you would like to make a reservation at the hotel, call the Crystal Gateway Marriott at (703) 920-3230 or (800) 228-9290.
By: Rosanne Thomas Matzat
The Bankruptcy Strategies Subcommittee of the Unsecured Trade Creditor Committee will use the March 14th committee meeting to further develop and refine its next planned project: a written and oral presentation on appropriate utilization of the formation of pre-chapter 11 committees of unsecured creditors. The subcommittee will continue developing specific subtopics and divide responsibilities with respect to the project at an upcoming subcommittee meeting. The date and location will be set on March 14th. Focus areas will include anti-trust implications to committee formation, as well as utilizing consignment arrangements and trade group trusts as a precedent or alternative to chapter 11. The subcommittee welcomes new members, and invites all interested parties to attend and participate in its meeting, to be held in Arlington. You can also contact either Co-chair Doug Fox of Rexroth Corp., Bethlehem, Pa. or Rosanne Thomas Matzat of Hahn & Hessen, New York City. Details of the subcommittee meeting will be mailed to members or can be obtained from Doug, (610) 694-8250, or Rosanne, at (212) 736-1000.
By: Bruce S. Nathan
The mere timely dispatch of a reclamation demand may not be sufficient for a reclamation creditor to obtain relief on its reclamation claim. The few courts that have addressed this issue are divided on the extent of diligence that a creditor must undertake to realize its reclamation claim. Courts following one view deny a reclamation claim where the reclaiming creditor does not diligently commence a proceeding in the bankruptcy court to enforce the claim. Other courts have refused to penalize reclamation creditors who failed to diligently enforce their reclamation claims. Most recently, the U.S. District Court in In re McLouth Steel Products Corp., 213 B.R. 978 (E.D. Mich. 1997) followed the former approach by requiring a reclamation creditor to either expeditiously commence an adversary proceeding or file a motion in the bankruptcy court when the debtor disputes the reclamation claim. Reclamation creditors that failed to diligently pursue their disputed reclamation claims were penalized by losing their claims. In McLouth, the reclaiming creditors sent written reclamation demands. The debtor, by letter, disputed the reclamation claims as having been extinguished by the claim of the floating inventory security interest of the debtor's secured lender. The debtor also asserted that the reclamation demands insufficiently identified the goods that the creditor had sought to reclaim. In response to the debtor's objection, two creditors filed proof of their reclamation claims with the bankruptcy court and then took no further action on their claims. The court, in denying their reclamation claims as not having been diligently asserted, stated that where a debtor is disputing a creditor's reclamation claim, the creditor must seek "judicial intervention" in order to preserve its claim. This requires the creditor to diligently file a motion or adversary proceeding for reclamation in the bankruptcy court. The court was more generous with the remaining reclamation creditors. Two of the reclamation creditors had filed motions for relief on their reclamation claims. Thereafter they withdrew their motions based on the debtor's representation that they could later move for allowance of an administrative claim for any allowed reclamation claim. A third reclamation creditor decided to forego commencing a lawsuit to enforce its reclamation claim based upon the debtor's representation that the creditor would be granted an administrative claim for any allowed reclamation claim without the necessity of commencing a lawsuit. In both instances, the court refused to dismiss the reclamation claims based upon an alleged failure to diligently enforce the claims. The court found that the debtor was estopped from defeating the reclamation claims based upon the debtor's statements that they would be granted an administrative claim for their allowed reclamation claims. The District Court's order was appealed to the Sixth Circuit. As this newsletter went to print, the case was settled and the appeal will be dismissed.
By: Bruce S. Nathan
A task force consisting of seven credit managers, three accountants and nine lawyers has been examining a number of matters concerning reclamation claims. The task force has reviewed the salient aspects of global reclamation programs adopted in larger chapter 11 cases, including an evaluation of the mechanism for reconciling reclamation claims, the mechanics for dispute resolution, disposition of reclamation defenses, and the treatment of allowed reclamation claims. The task force is also evaluating the implementation of several of the reclamation programs. Their ongoing analysis includes examining the number of vendors that have (i) participated in the programs, (ii) settled their claims and (iii) litigated their disputed claims. The examination is also focusing on whether the global programs resulted in an increase in the amount of trade credit extended to the debtor. The task force is also reviewing the following "legal" issues: (a) proving the debtor's possession of the reclamation goods when the reclamation demand is made; (b) the treatment of allowed reclamation claims; (c) the diligence with which reclamation claims must be pursued; and (d) the impact of a floating inventory lien on reclamation claims.
By: Samuel J. Gerdano, Executive Director
A new bill introduced in the House in early February would provide new rules for streamlining small business cases. H.R. 3150, the "Bankruptcy Reform Act of 1998," sponsored by Rep. George Gekas (R-PA), Chairman of the House Subcommittee on Commercial and Administrative Law, would apply to all cases under $5 million in total debt, roughly 90 percent of all chapter 13 cases. The bill would require strict 90-day deadlines for plan submission, with confirmation to occur 150 days after filing. The bill would require a more active role for the U.S. Trustee, including the ability to recommend conversion or dismissal where there is no real likelihood of rehabilitation. Judges would be required to use modern case-management techniques to reduce costs and delay. A separate provision in the Gekas bill would help enable small creditors to mount effective defenses against preference actions. Proposed §547(c)(9) increases the minimum aggregate transfer that must be sought in a case against a creditor to $5,000. This section would also clarify the ordinary course of business exception for preferential transfers by disallowing a creditor from being sued for receipt of a preference if it has received a payment in the ordinary course or made according to ordinary business terms. A further provision would require preference actions under $10,000 to be brought in venue where the creditor resides. The new legislation is consistent with the Preference Survey Report issued by ABI in May 1997 and the recommendations of the National Bankruptcy Review Commission. ABI will post updates on this bill and others coming before Congress this session in the "Today’s Headlines" and "Legislative News" areas of ABI World, http://www.abiworld.org.
Those interested in ABI’s Bankruptcy: A Survival Guide For Lenders still have a chance to scoop one up. Developed specifically to assist lenders in understanding the bankruptcy process in business and consumer cases and their roles in that process, the book was written by ABI members Thomas P. Yoder and Deborah L. Fletcher. Because bankruptcy affects everyone involved in business today, and lenders in particular, this guide is a valuable resource for executives and managers in banking as well as turnaround consulting. The book is $12 for members and $20 for non-members. ABI’s Publications Catalog is online at "/org/pubscatalogue.html" or can be requested by calling or emailing ABI at abi@pipeline.com.
The American Bankruptcy Institute’s ABI Journal and "Cracking the Code" online newsletter would love to hear from you. The Journal welcomes Letters to the Editor on topics featured in the magazine. Letters should be addressed to Journal Editor-in-Chief Samuel Gerdano and can be mailed to ABI. Contributors to the "Cracking the Code" online newsletter can write on topics within their committees or their practices. Submissions should be addressed to Mana Zarinejad, communications assistant. All submissions should be sent by disk in WordPerfect 6.1 along with a hard copy. Submissions can also be emailed to abi@pipeline.com. All ABI articles are copyrighted and ABI reserves the right to edit submissions. |