NACM teams up with CLLA to present legal symposium.
The first session was entitled "BAPCPA: One Year Later." BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) was an important milestone for business creditors, as it affected important issues, such as preferences and reclamation rights. Even though BAPCPA provisions did not take effect until Oct. 17, 2006, there has already been a significant amount of bankruptcy court activity and case law surrounding the legislation. On hand to lead the session were two bankruptcy court judges and several distinguished experts on bankruptcy law. The judges were Hon. C. Ray Mullin, U.S. Bankruptcy Court for the Northern District of Georgia and Hon. Robert D. Drain, U.S. Bankruptcy Court for the Southern District of New York. Mullin contended that there were some unfortunate ambiguities in the Act. "I think you've heard that BAPCPA is not the most clearly written law." However, he noted that such confusions might be cleared up after appeals or when U.S. Circuit Courts start issuing decisions on bankruptcy cases brought before them. Another session leader, Professor Ray Warner, St. John's University School of Law, concurred that provisions of the law were poorly drafted. "It's very hard to say what Congress intended," he said. "With some of these amendments you have to go back to the original act to see Congressional intent." Warner also noted an important change regarding preferences. Under the old law, a trade creditor had to prove the alleged preference payment was both in the ordinary course of business between creditor and debtor as well as for the industry as a whole. Now, trade creditors have to prove only one of the conditions in order to successfully defend against a preference claim. "Theoretically, you should be able to win much easier," Warner added.
NACM advisor and bankruptcy expert Bruce Nathan, Esq. of Lowenstein Sandier, PC led the session entitled "Sales and Puts of Trade Claims: The Risks and Rewards." Creditors may help manage their risk to debtors at risk who will or have fried a Chapter 11 bankruptcy claim by selling their pre-petition unsecured claims Nathan said. They may also enter into a put arrangement that shifts to a third party the credit risk of dealing with a customer that either might eventually file bankruptcy and/or is already a Chapter 11 debtor. Scott Friedman, Avenue Capital Group and Dilek Akpinar, CCE, Pfizer, Inc., discussed the risks and rewards of entering into these arrangements. Friedman advised that a put document is a fairly "boilerplate" document and should only be about three pages long. If it is longer, it might be trying to hide something, like a cancellation clause. "You really have to read the fine print of these documents," Nathan added. Selling trade claims, "is where a credit professional can be savvy," Akpinar said. "You can use it to be a hero."
"Bankruptcy: A 360-Degree View" was led by NACM advisor Wanda Borges, Esq., of Borges & Associates, LLC, along with a panel of other legal experts and credit professionals. They imparted some of the knowledge of bankruptcy situations they've acquired in their years of experience with the subject. Borges advised creditors getting a preference demand letter to not "be so fast to write out a check for under $5,000." She also pointed out that reclamation matters are heavily litigated because they are complicated and pit unsecured creditors against secured creditors. "When you see a Chapter 11 and you have a reclamation claim, keep on top of the situation," Borges added. Also, Borges recommended unsecured creditors to perform a UCC (Uniform Commercial Code) search to find any secured creditors of a particular debtor that may have security rights to property on which you may have a reclamation claim. "Within a matter of about five minutes you can find out if there is a secured creditor out there that's going to file a lien and wipe you out."
The final session of the symposium, "Preferences: Guilty Until Proven Innocent," included Val Venable, CCE, GE Plastics America and former NACM Chairman. Venable, who has extensive experience with bankruptcies from a trade creditor's perspective, advised, "Never turn down a payment, even if it's found to be a preference." "I'd rather have a preference than not have the cash," added panel member Harry Greenfield, Esq., of Buckley King. Venable recommended answering preference letters as soon as possible. She also said it was important to understand the bankruptcy law to know how to prevent payments from meeting the legal definition of a preference. "We really want to preference-proof our payments." Eric Lopez Schnabel, Esq. of Buchanan & Rooney PC, recommended making sure electronic communications related to credit and payments be properly maintained. "Don't delete e-mails. That's destruction of evidence." On the subject of providing new value to a customer--a defense against a preference claim--Greenfield said, "The customer makes a payment to you and then you ship him new stuff. That's new value." Venable added, "If we get paid in advance, we shouldn't have a preference risk. While CIA (Cash In Advance) or COD (Cash On Delivery) is helpful, it can add costs."
Tom Diana may be reached via e-mail at firstname.lastname@example.org.
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|Title Annotation:||CREDIT COLUMN; Commercial Law League of America; National Association of Credit Management|
|Date:||Jan 1, 2007|
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