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Chapter 11: Claims and Objections
News Room

Web posted and Copyright © 1/12/98, American Bankruptcy Institute.

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.
The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.) 

ID Name Group Other Code
Sec
Cross
Ref
Problem Referenced Proposed Solutions
NBRC-0180 Marc S. Young Disputed Secured Creditor
507(a)(1)
Priority status for administrative expenses should include recovery of court ordered attorney's fees and pre-petition interest in cases where the underlying claims involve misrepresentation or the violation of consumer protection laws. Code section governing priority for administrative expenses, § 507(a)(1), should be amended to include court ordered attorneys fees and pre-petition interest in cases where the underlying claim involves misrepresentation or the violation of consumer protestion laws.
NBRC-0187 Amy M. Tonti, on behalf of the Allegheny County Bar Assoc.'s Bankruptcy and Commercial Law Section Attorney Copy of 4th Cir. case 363(f) 1141(c) NBRC should review §§ 363(f) and 1141(c) to clarify the scope of claims and interest that may be divested by a bankruptcy sale. To illustrate his argument, the author attaches a copy of the Fourth Circuit decision in In re Leckie Smokeless Coal Company, addressing bankruptcy sales. 99 F.3d 573 (4th Cir. 1996). On pages 8 through 14 of the case, the Court clarifies the scope of claims and interest that may be divested by a bankruptcy sale. The case was brought by Chapter 11 debtor-coal operators seeking declaration that puchasers of their assets would not be jointly and severally liable as debtors' successors in interest for the debtors' financial obligations to a benefit plan and fund. The Fourth Circuit concluded that, under the Coal Act, these debtors could sell their assets free and clear of their obligations to the benefits plan and fund, regardless of whether the purchasers were debtors' successors in interest within the meaning of the Act. The plan/fund had "claims" against the debtors to future Coal Act premiums, and the plan/fund's right to collect premium payments for the debtors constituted interest in assets. Urges NBRC to review §§ 363(f) and 1141(c) to clarify the scope of claims and interest that may be divested by a bankruptcy sale.
NBRC-0223 Frank R. Kennedy Professor, Michigan Law School; former Executive Director, Commission on the Bankruptcy Laws of the United States (1973) Cover letter discussing various areas of concern 507
Author provides a list of 30 "Topics for Consideration by Commission on Bankruptcy Laws." The recommended topic relating to claims was: Reduction of priorities. None.
NBRC-0264 Joan E. Pilver Assistant Attorney General of Connecticut
925, 1111(a) Supports application of the "deemed filed" rule to all chapters of the Code for federal, state and local governments. Clever debtors, however, would be able to employ certain strategies to undermine this rule, such as scheduling many of the claims as "disputed" or "unliquidated," or eliminating a cliam entirely. Additional language modeled upon the language in § 523(d) that would prevent debtors from routinely using strategies to undermine the "deemed filed" rule. Suggested statutory language is provided.
NBRC-0264 Joan E. Pilver Assistant Attorney General of Connecticut
6672 1129(a)(9)(C) Decision in United States v. Energy Resources has contributed to a further shifting of the balance of powers away from tax creditors and toward debtors and other creditors, particularly in Chapter 11 cases. Strongly supports an amendment to the Code which would have the effect of overruling the decision in Energy Resources Co. Additionally, § 1129(a)(9)(C) should be amended to restore the proper balance which is preserved in other sections of the Code, notably the priority §§ 507 and 726.
NBRC-0303 Commercial Law League of America Commercial Law League of America (CLLA)


The Commerical Law League of America believes that the following issue should be considered by the NBRC: Should the court exercise control over claims trading If so, what criteria should be used to regulate such trading Should procedures be developed to facilitate claims data The CLLA believes that this issue should receive top priority (no additional details are provided).
NBRC-0492 Philip J. Brandl President, National Housewares Manufacturers Association Position Statement on Bankruptcy Law Reform, Housewares Manufacturers Coalition

Author is forwarding a "Position Statement on Bankruptcy Law Reform" from the National Housewares Manufacturers Association. NHMA members recognize that losses must be born by all creditors, but are concerned that they not fall disproportionately on suppliers. The 10 day reclamation period under the UCC and 20 days reclamation period under the Bankruptcy Code are inadequate protection. The goods are in the hands of the debtor solely because they were delivered on credit. Also, "debtors "load up" on goods just prior to commencing a bankruptcy case in order to increase their asset bases. This occurs at the expenseof suppliers who often ship in good faith based on assurances from the debtor that it will be able to service their resulting claims. The already limited reclamation rights do not extend to proceeds received by a debtor when the goods are sold. "1. Expansion of the 'look back' period to at least sixty days before the commencement of the case, but preferably to ninety days." "2. Recognition of a supplier's right to proceeds of the sale of goods subject to reclamation, at least to the extent of the wholesale value of the goods sold. 3. Recognition of a priority for suppliers of goods over the claims of a secured lender with an interest in a debtor's inventory..." "At the very least, the Commission shold consider whether it can devise any rules that would induce the financial community to lend less against a retailer's inventory for which suppliers have not been paid."
NBRC-0584 Gerald B. Lindrew Deputy Director of Policy and Research, U.S. Department of Labor Letter dated 10/28/96 from Senator Barbara Boxer to Robert Rubin; Letter dated 3/7/97 from Cynthia A. Metzler and Robert Rubin to The Honorable Barbara Boxer.

Author is forwarding copies of letter from Senator Barbara Boxer to Robert Rubin, and the response from Cynthia A. Metzler and Robert E. Rubin. The Senator is concerned with recent events where employees' 401(k) plans were invested in the company's own stock, and the company went bankrupt, causing the employees to lose their pensions, but the executives managed to keep theirs. No specific solution proposed.
NBRC-0628 Walter Taggart
Villanova Law School


"If you have time it might be worthwhile considering whether the bankruptcy law should worry about the post confirmation treatment of the claimants. Now each case is a bargain that is set forth in something called Claims Resolution Procedures. This is an ADR procedure that is substituted for the bankruptcy claims allowance process." Author goes on to discuss the difficulty posed by retaining insurance coverage. "What the carriers sometimes argue is that the claims paid under the Claim Resolution process by the vehicle are not payments that fall under the duty to indemnify."
"I think that the statute should say that if there is a substitute for the bankruptcy allowance process any payments under that substitute process shold be good enough to trigger the obligation to indemnify."
NBRC-0718 William P. Reibl Vice President and General Manager, Progressive International Corp.


Author writes to support the position of the National Housewares Manufacturers Association (NHMA). Of particular concern is the limitation of reclamation rights. No specific solutions proposed.
NBRC-0721 Robert K. Parmacek Chairman and Chief Executive Officer, Carlisle Home Products USA


Author writes to support the position of the National Housewares Manufacturers Association (NHMA). Cf. NBRC-0718, which is the same basic form letter in support of the National Housewares Manufacturers Association position. No specific solutions proposed.
NBRC-0722 William E. Adams, Sr. CEO, Adams Manufacturing


Author writes in support of the position of the National Housewares Manufacturers Association (NHMA). Cf. NBRC-0718 and 0721, both of which are the same basic form letter. No specific solutions proposed.
NBRC-0722 Thomas W. Kieckhafer President, The West Bend Company


Author writes in support of the position of the National Housewares Manufacturers Association (NHMA). Cf. NBRC-0718 and 0721, both of which are the same basic form letter. No specific solutions proposed.
NBRC-0722 James V. Massone Managing Director/General Manager, WELCO INC.


Author writes in support of the position of the National Housewares Manufacturers Association (NHMA). Cf. NBRC-0718 and 0721, both of which are the same basic form letter. No specific solutions proposed.
NBRC-0722 Mark J. Bissell President and Chief Operating Officer, Bissell Incorporated


Author writes in support of the position of the National Housewares Manufacturers Association (NHMA). Cf. NBRC-0718 and 0721, both of which are the same basic form letter. No specific solutions proposed.
NBRC-0828 Martin Stone Attorney
506(c)
At present, section 506(c) provides that only the trustee (or the debtor-in-possession) "may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim." Author has represented unsecured trade creditors who supplied goods or services to property which is later deemed unnecessary to the reorganization. Since it is of no value to the debtor or trustee, they will not bring suit, but it would be beneficial to his client. Author strongly urges that §506(c) be amended to permit a party-in-interest to bring an action against a secured party.
NBRC-0837 Francis M. Allegra Deputy Associate Attorney General, U.S. Department of Justice Memorandum dated June 16, 1997 from Fran Allegra to Jonathan Gruber re: Treasury Comments on Bankruptcy Commission Position on Asset Exemption Levels.

"The May 6, 1997 memorandum contains a new and troubling proposal authorizing the imposition of attorneys' fees against creditors who file false claims against debtors. WE neigher understand the purpose, scope nor effect of this proposal, and are concerned about creating a new one-way fee shifting provision, especially if it covers mistakes and is not limited to willful actions." "While we would prefer that the Commission abandon this concept entirely, especially if mistakes made by creditors regarding their claims are covered by this proposal, at the least the recommendation should also extend to baseless objections to claims filed by debtors, as well as to baseless allegations by debtors that creditors have filed false claims."
NBRC-0858 Ed Goldwasser, et al. Small World Toys


"It is too easy for a debtor contemplating Bankruptcy to obtain delivery of large amounts of goods within weeks of the filing; then creditors may not receive any notice fromt he Bankruptcy Court for weeks after the filing." "Reclamation should be extended from 10 days to 60 days."
NBRC-0858 Ed Goldwasser, et al. Small World Toys


No discussion. "Creditors who ship a Chapter 11 post-petition debtor should receive priority payment status."
NBRC-0861 Michael Decker Vice President, Policy Analysis, PSA: The Bond Market Trade Association Proposed Amendments to Sections 541 and 362(b) of the Bankruptcy Code (Structured Finance Exemption) and Explanation 541, 362(b)
Author is forwarding a copy of a proposal to amend §§ 541 and 362(b) of the Code to protect outstanding asset-backed transactions from disruption and to allow for the further development of structured finance, and to eliminate legal opinion impediments to the completion of new asset-backed securitizations in the face of uncertainties of state law and differing treatments for tax or accounting purposes. Specific amendment proposals are included.
NBRC-0722 William R. Lenahan President, Travel Smart by Franzus


Author writes in support of the position of the National Housewares Manufacturers Association (NHMA). Cf. NBRC-0718 and 0721, both of which are the same basic form letter. No specific solutions proposed.
NBRC-0926 Steven L. Schwarcz Professor of Law, Duke University School of Law Article from North Carolina Law Review by author entitled "Protecting Rights, Preventing Windfalls: A Model for Harmonizing State and Federal Laws on Floating Liens. 522
Author is forwarding a copy of his article in the North Carolina Law Review which discusses a proposal to amend §522 to implement a model that would better balance the policy considerations underlying that section and make judicial outcomes more predictable. N/A
NBRC-0930 C. Daniel Motsinger Attorney, Krieg, Devault, Alexander & Capehart Letter from Grant F. Shipley to C. Daniel Motsinger dated July 10, 1997, attached as Appendix A. 1124
"Since interest ceases accruing on unsecured claims as of the date of the filing of the petition...in long-lived Chapter 11 cases application of §1124(3) could lead to the loss of significant value for unsecured creditors and deprivation of the ability to vote on a plan." Section 1124 (3) should be reintroduced, with modifications suggested in the letter.
NBRC-0930 C. Daniel Motsinger Attorney, Krieg, Devault, Alexander & Capehart Letter from Grant F. Shipley to C. Daniel Motsinger dated July 10, 1997, attached as Appendix A. 506(c)
Author discusses the opposing views of those who represent secured creditors and those who represent debtors and unsecured creditors as to whether §506(c) should authorize a broader range of costs to be allocated to the collateral of secured creditors, regardless of whether the secured creditor actually received a "direct" benefit. Author also addresses whether §506(c) should be amended so that it expressly permits parties other than the trustee to seek recovery. Many lawyers do not favor expanding standing to include parties other than the trustee (or debtor in possession), fearing an explosion in litigation. A minority favor expanding standing, but with enumerated limits.
NBRC-1028 Jim Gulechyn National Credit Manager, General Mills, Inc.
546(c)
Section 546(c) gives trade creditors a limited right to reclaim their goods when their customers file bankruptcy, but it is limited to goods received within 10 days before the reclamation demand is served. Debtors usually know of their financial straights well before 10 days before filing, which means many creditors are effectively defrauded, with no remedy but an unsecured claim. "To help ameliorate this situation, §546(c) should be amended to provide that, despite the 10-day limitation in §2-702 of the UCC, creditors may reclaim goods received within 15 days of the demand ( or 15 days of bankrutpcy, if the demand is served within 10 days after the bankruptcy)."
NBRC-1053 Richard G. Lugar United States Senator


Author is sending letter from consituent, Peter Redmon, President, W.C. Redmon Company, who reports the "undue financial hardship on suppliers and manufacturers caught in a bankruptcy proceeding." 1) Expand the reclamation period from the current 10 days to 6 months prior to the commencement of a case; 2) unsecured creditors who ship to a troubled retailer should have priority over secured lenders at the time of a bankruptcy; 3) require these retailers to either cease operations, liquidate totally and pay creditors as capable a percent of the balance due, or in the event that they continue to operate, sign on for long term obligation of at a minimum the principal amount, without interest.
NBRC-1055 Leonard H. Solomon Sonnet Industries, Inc.



"We strongly feel that the National Bankruptcy Review Commission should recommend a longer reclamation period for vendors in corporate commercial bankruptcies."
NBRC-1074 Karen Cordry Bankruptcy Counsel, National Association of Attorneys General


Author feels that the aspect of the proposal which provides that a plan "may" provide for the payment of postpetition interest if such interest would have been distributed if the debtor had been liquidated would substantially undermine the effect of the change made by Congress to deal with the problem that occurred in In re New Valley Corp.. "To begin with, I do not see how a voluntraya provision accomplishes anything. After all, there is nothing in the Code now that prohibits a debtor from agreeing to pay interest even if this is not required. This section will add nothing unless it is made mandatory." Make the proposal for the payment of postpetition interest mandatory.
NBRC-1098 Jon Arnason Holland & Knight


"With respect to the proposal to amend Section 506...there is a significant body of personal property -- such as aircraft, vessels, rail equipment, etc. -- which has not wholesale value because ther is no "wholesale" market. How is the poor judge supposed to determine wholesale value in that case" "You have to provide for situations where there is no wholesale value."
NBRC-1138 Amy M. Tonti Attorney, Klett Lieber Rooney & Schorling In re Leckie Smokeless Coal Company, 99F.3d 573 (4th Cir. 1996) 363(f), 1141(c)
Author submits a copy of In re Leckie Smokeless Coal Company, 99 F.3d 573 (4th Cir. 1996) which addresses in part a point which she had earlier raised. "I am hopeful that the Commission will undertake a review of Section 363(f) and 1141(c), with the goal of clarifying the scope of claims and interest that may be divested by a bankruptcy sale."
NBRC-1138 Amy M. Tonti Chair, Bankruptcy and Commercial Law Section, The Allegheny County Bar Association Recommendations of the Allegheny County Bar Association's Bankruptcy and Commercial Law Section to the National Bankruptcy Review Commission. 363(f), 1141(c)
Author submits the Recommendations of the Allegheny County Bar Association's Bankruptcy and Commercial Law Section to the National Bankruptcy Review Commission. "The Section supports the amendment of Sections 363(f) and 1141(c) to insure that all sales may be free and clear of all claims and interests of creditors...or any other person or entity...; provided that the Court finds: (a) that the moving party took reasonable steps to provide due process (notice and opportunity to respond) to all persons or entities whose interest may be adversely affected by the sale; and (b) that the moving party provided for the fair and equitable treatment of claims and interests affected by the sale."
NBRC-1157 Wendell J. Sherk Attorney, Eric Taylor & Associates, P.C.


Author is concerned about the impact in the consumer area of the proposal to expand the "deemed filed" rules in Chapters 9 and 11 to all other Chapters of the Bankruptcy Code. Author feels this will cause problems for trustees due to inaccuracies in schedules and in dealing with returned funds. Mainly, author is concerned that some creditors may receive excessive benefit, and that an attempt is being made to protect a constituency which is more than capable of caring for itself. "A less-grandiose proposal might solve the apparent problem. For example, an extended claims bar date would open up more timely claims. At least in Chapter 13s, the trustee should be authorized to begin distributions earlier to provide adequate protection. It may also be reasonable to expand the "excusable neglect" standard allowing greater judicial flexibility with untimely claims. Allowing judicial discretion would address the few situations where the creditor was genuinely incapable. On the other hand, the consumer lending industry is hardly in need of congressional care in protecting its recoveries or its profitability."
NBRC-1164 Barbara J. Sellers Bankruptcy Judge, Southern District of Ohio, Eastern Division


"...it does not appear to me to be a good idea to create lots of categories of secured debts with varying treatments possible depending on the category." "Make the treatement possibilities [for claims] clear and uniform and eliminate the expensive "chipping away at the corners" efforts that clog dockets, escalate costs and delay case resolutions."


 

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