Bankruptcy Law Update Provided by Experts

Bankruptcy

Two experts in bankruptcy law provided attendees of an NACM audio teleconference with updates to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. BAPCPA was a major amendment to the federal bankruptcy law that, while making major changes to consumer bankruptcy provisions, also made changes relevant to commercial creditors of insolvent debtors.

The presenters of the teleconference, Wanda Borges, Esq. of Borges & Associates, LLC and Bruce Nathan, Esq. of Lowenstein Sandler PC, are also advisors and teachers for NACM. They discussed topics relating to several important past federal bankruptcy court cases. They noted that BAPCPA is approximately 1.5 years old, pointing out that there is little case law yet regarding the new provisions implemented by BAPCPA. On the subject of reclamation, which is treated differently under BAPCPA than it was prior to its enactment, Nathan said, "It will be interesting to see what happens in case law to reclamation." Both discussed several major federal bankruptcy court cases involving reclamation and preferences. Preferences were also addressed in BAPCPA and changes were made as to how they are applied to commercial creditors. Under BAPCPA, Nathan pointed out that there is a new 20-day administrative expense claim for goods received within 20 days of bankruptcy in the ordinary course of business under section 503(b)(9). "The first 20 days of bankruptcy should be covered by the 20-day administrative expense claim," Nathan said. "You don’t need to send a reclamation demand for this claim." Borges noted, however, that administrative claims are usually not paid out until the end of a bankruptcy case.

Creditors under BAPCPA can now more easily defend against a preference demand. Nathan said that a creditor might choose a defense that asserts the alleged preference payment was made in the ordinary course of business or in the ordinary terms of the industry. Prior to BAPCPA, a creditor had to prove both conditions existed in order to be able to successfully defend against a preference demand.

As in all NACM audio teleconferences, time was reserved at the end for participants to phone in questions to the presenters. A participant asked about the legitimacy of offers by companies to buy claims. A procedure in bankruptcy law allows a creditor to buy claims, Nathan said. "My advice to you is you should seek professional help to determine if the claim buyer is legitimate and also to check out the agreement to make sure it’s advantageous to you." "Ask fellow NACM members about a claim buyer," Borges added.

Another question was which is better to use in a preference defense — the normal course of business or the new value defense? "Use all your defenses," Nathan said. "The new value defense could allow a reduction of your expense exposure. At the same time, you should be doing an analysis of the ordinary course of business defense. I have used ordinary course of business defense in tandem with the new value defense." A participant also wanted to know whether he should file a reclamation claim even though he has an administrative claim under section 503(b)(9). Borges noted that a grant under section 503(b)(9) is not automatic. "You’re going to have to file a motion before the court."

Source:  Tom Diana, NACM staff writer

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