Credit Management Association

At a recent meeting of CMA’s Western Home Furnishings Credit Group, long-time member Sandberg Furniture informed the group that a tax auditor from the State of Texas was currently on site at Sandberg’s office requesting Texas Sales and Use Tax Exemption Certificates (aka Resale Certificates) for all of Sandberg’s Texas customers. According to Sandberg, this is the first time the furniture manufacturer has ever been audited by another state to produce proof of customers’ status as resellers. Texas requires that suppliers get certificates signed by resellers in Texas and must keep original signed certificates on file in order to prove exemption from paying state tax on purchases. Failure to produce signed certificates can result in possible liability for unpaid sales tax that could be billed to suppliers.

CMA is bringing this matter to the attention of all of our members because of its potential to affect any member with customers in the State of Texas. Also, this action suggests that other states may engage in similar audits in an effort to generate additional tax revenue.

I would like to extend CMA’s appreciation to Sandberg Furniture for alerting us to this potentially serious situation, and allowing us to share this information with all of our members so they can be prepared.

Respectfully,

Mike Mitchell, CAE
President and CEO

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Joseph Hanna

by: Joseph M. Hanna

For companies who plan to sell goods to customers who are in bankruptcy you need to be aware of a case that was decided in the United States Court of Appeals for the Eleventh Circuit which covers Alabama, Florida and Georgia.

In the case of In Marathon Petroleum Co. v. Cohen [In re Delco Oil, Inc., the 11th Circuit ruled Marathon had to return $1.9 million paid by the chapter 11 bankruptcy debtor Delco Oil for petroleum products supplied, post-petition and pursuant to a pre-petition sales agreement, because the payments were considered unauthorized transfers under Section 549 of the Bankruptcy Code.

Delco filed a Chapter 11, later converted to a chapter 7 after which the chapter 7 trustee sued to recover the $1.9 million because payments made to Marathon were improperly paid from the cash proceeds of the debtor’s secured lender’s collateral. For its part, Delco made the payments despite being barred by the Bankruptcy Code from doing so without the lender’s or bankruptcy court’s express permission. Section 549(a) of the Bankruptcy Code authorizes a trustee to recover unauthorized post-petition transfers of estate property.

First, some bankruptcy law:   The purpose of the chapter 11 bankruptcy is to allow the debtor an opportunity to reorganize, come up with a plan to pay its creditors and emerge from the bankruptcy. Until that happens the debtor needs to keep operating in the ordinary course, however the Bankruptcy Code prohibits the post-petition use of assets, i.e., cash, accounts receivables, etc.,  by a trustee or a debtor-in-possession if there is a secured creditor who has an interest in those assets unless the secured party approves the use of such assets or the bankruptcy court after notice and a hearing authorizes the use of cash collateral.  Most, if not all, of the business bankruptcies involve a secured creditor.  Therefore, once a chapter 11 is filed the debtor immediately requests a court order granting use of “cash collateral”.  The purpose of this is to get court permission to use cash and payments from personal property that is subject to a security interest in order to continue operating their business, e.g., buy goods, pay utilities, rent, payroll, etc.  Court permission is also necessary for the sale of debtor assets, e.g., trucks, construction equipment, office equipment, etc.

In this case, there was a secured creditor who had a perfected security interest in all of Delco’s personal property.  Delco requested permission to use cash collateral however  the court denied the request.  Thereafter Delco purchased and paid for petroleum products from Marathon Oil.  Despite the many arguments presented by Marathon, all of which the court found to be unsupported by the facts and law, Marathon was ordered to return the money.

This 11^th Circuit decision  is not controlling in California which is part of the 9^th Circuit, however it does alert creditors and others to look more closely at what the debtor is doing and argue that the debtor payments to a trade vendor for post petition sales were done without permission of the court, or the cash collateral order did not include transactions with trade vendors, and therefore are avoidable as unauthorized post-petition transfers in violation of §549.

If you are considering selling product post-petition to a bankruptcy debtor you will want to protect your company by confirming the funds you receive are free from a creditor’s secured interest by reviewing the cash collateral order  (1)  to confirm there is an order permitting the debtor to pay you and, (2)  the order is worded to include transactions with your company.  If you are planning to sell in the 6 or 7 figures to a debtor in bankruptcy you will want a bankruptcy court order that specifically names your company.

The information contained in this email newsletter is designed to provide information on general legal issues, new legislation and recent legal developments; it should not be relied upon as legal advice. For specific questions about any of the matters discussed in this issue please contact the attorney author or send us an email. All readers should consult professional legal counsel to obtain advice on specific projects or matters.

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As you know, the so-called Red Flags Rule, otherwise known in Government-speak as FACTA, goes into effect on June 1, 2010, requiring most companies to develop a program to recognize and combat threats of identity theft. This message is intended as a “public service” to CMA members on the subject.

A good starting point is the FTC’s brochure on FACTA, which can be accessed at http://www.ftc.gov/bcp/edu/microsites/redflagsrule/index.shtml . On the first page of that site is another link to a lengthy .pdf brochure that represents the FTC’s description of the rule, whom the rule covers and how companies should proceed to comply with it. Unfortunately, the brochure is not specific about exactly what to do.

In addition, Mike Joncich of CMA’s Adjustment Bureau has developed a PowerPoint presentation of how the Rule works and what companies should do to comply with it.

Finally, a CMA Webinar on “FACTA and the Red Flags” is scheduled for May 6 from 9:00 to 10:00 a.m. The cost for members is $79, although if you haven’t already taken advantage of your “one free Webinar” that’s part of most CMA membership packages you might want to use it for this one. The presenter is Brenda Terreault, who is with the collection dept. of NACM Oregon and has a very impressive resume’ as a former North Carolina Supreme Court clerk and as a former practicing attorney.

You need to do what you can to help your company comply with the Red Flags Rule, assuming your company is covered by the Rule as we are advised most companies likely are. The information in this message should afford you the opportunity to become as well informed as possible on this important subject.

Richard Kaufman, CAE
Credit Management Assn.

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CMA has spent years researching what makes Collectors successful. We think we have found the secret to collecting on 100% of your calls today, Puppy Powered Collection.

How does Puppy Powered Collection work:

1. Watch the video below as you prepare for your collection calls. This reduces your stress level and keeps your mind nimble for the negotiation to come.

2. Is the call getting rough? Hit play and turn the sound down, so you can absorb Puppy Power during the call. The customer may be difficult, but just look at that puppy roll around.

3. To secure an agreement for full payment – go full screen (the button with four arrows) and immerse yourself in puppy collection energy. Wait a few seconds for the full effect, then ask the customer for full payment.

These Puppy Powered Collection techniques are proven to reduce stress and help you collect on 100% of your calls today, and that’s no April Fools Joke (or is it).

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