503(b)(9) Survives in ABI Bankruptcy Reform Proposal

The American Bankruptcy Institute (ABI) Commission on the Reform of Chapter 11 has unveiled a lengthy list of recommendations it will present to the US Congress that include attempting to streamline the process for small businesses that have been adverse to seeking Chapter 11 as an insolvency remedy and preserving trade-critical 503(b)(9) priority claim rights for goods delivered within 20 days of a filing. The recommendations follow a lengthy series of ABI field hearings, including one hosted by NACM at the 117th Credit Congress in May 2013.

The ABI Commission has been studying what potential changes to the Bankruptcy Code would help Chapter 11 reduce barriers to entry, which it argued especially hinders small and medium-sized enterprises from use, and generally improve the process. Commission members, in previewing today’s official release of the recommendations during an event on Saturday, said they believe the recommendations could do just that, and notably provide more alternatives and flexibility to make bankruptcy work as a “safe harbor.”

Of significant importance to trade creditors was the issue of 503(b)(9). In fact, NACM members were the first to testify during ABI Commission hearings about the importance of preserving 503(b)(9), which was once thought to be a possible target for proposed elimination by the ABI Commission. It announced that 503(b)(9) would not be eliminated as part of approximately 240 recommendations ABI will make to US lawmakers in 2015.

Section 503(b)(9) was included in 2005 changes to Chapter 11 and grants an administrative priority to any goods seller who provided its products to a debtor within 20 days of their bankruptcy filing. Trade creditors, including a panel of exemplary NACM members that testified at the ABI hearing held at Credit Congress in Las Vegas, have long argued that the statute's protections make it easier for businesses to extend credit and do business with struggling customers. Notably, 503(b)(9) only applies to providers of goods, but not services. 

Commission members noted the report also includes no recommendations of mandatory surcharging of secured creditors or the elimination of credit bidding, creditors' committees or preferences.  They also reiterated the presentation of the report is not the Commission's final word on bankruptcy reform--they expect continued dialogue on the proposed recommendations from stakeholders in the coming weeks and months.

- Brian Shappell, CBA, CICP, NACM staff writer

For more information on the ABI bankruptcy reform recommendations, please view the week’s edition of eNews on Thursday afternoon and return here to the NACM blog in the days after. Bruce Nathan, Esq., a partner with Lowenstein Sandler LLP, will also serve as presenter of an NACM teleconference on the matter, “The ABI Bankruptcy Reform Commission Speaks!,” on Wednesday. For more information or to register, click here.

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