Update 2: Before a packed room during NACM's 2013 Credit Congress, six credit veterans testified as part of a public field hearing conducted by the American Bankruptcy Institute (ABI) for the need of change to the Bankruptcy Code in the areas of Section 503(b)(9) and preferences. What resulted was a lively discussion with seven of the members of the ABI Commission to Study the Reform of Chapter 11.
ABI Commissioner Geoffrey Berman noted that, with changes in the world financial environment, “a better set of tools is required” in Chapter 11 bankruptcy, and that the Bankruptcy Code “was not designed to address these changes.”
An important topic that came up several times during the hearing was creditors' committees. While questions arose about costs involving committees, the ability to find people in the applicable trade who are willing to serve, and the potential for conflicts of interest, the value of committees remains, which appeared to be reflected during the ABI commission members' comments. Commissioner William Brandt Jr. said it was very unlikely creditors' committees “will see their sunset.”
“Our task is not to roll back the tides of history, but reset the equilibrium,” Brandt said. Meanwhile, Commissioner Steven Hedberg noted the importance of the Commission in “balancing rights” between secured and unsecured creditors. “It's a big part of what's going to happen in this process.” However, such "balance” discussions also led to whether or not service providers should have the same rights within Section 503(b)(9) as manufacturers.
In any case, a repeal should not be on the table. "Repealing 503(b)(9) would create so much more uncertainty in the supplier community,” said Sandra Schirmang, CCE, ICCE, senior director of credit for Kraft Foods Global, Inc. “It would make such precautionary, damaging actions much smarter moves for suppliers, to the detriment of debtors. As unsecured creditors, we're willing to take on reasonable risk, but not to an outrageous extent and not if we think that money won't ever be paid to us.”
On preferences, Berman took exception to testimony regarding the idea that all or a majority of trustees are shot-gunning without analysis, or don't care while filing preference claims. “Not everyone takes a check register and files a lawsuit,” he said. “Saying a trustee is just taking a check register and filing lawsuits is not typically accurate. Yes, there are firms that do that, but that's not how everybody does it,” he said.
Berman also got into a spirited debate with Kathy Tomlin, CCE of Central Concrete Supply Co., Inc., one of three on the preference panel, over the proposal that the onus should be on those filing the preference claim rather than the creditor. He also said that the “guilty until proven innocent” theory could be working against creditors.
Berman argued that modern credit managers have a greater opportunity/ability to gather information than ever before, telling panelists “the moment you have a claim, go pull the records.” Tomlin responded that creditors only had their own record, and that advances in technology have worked to provide debtors with that same, greater availability of information. Overall, panelists representing NACM continually noted just how far preference law has gotten away from the intent within the Code.
"The tremendous amount of expenses involved in pursuing and fighting actions are doing too much to drain the already deficient pot that exists in bankruptcy,” said Val Venable, CCE, director of credit at Ascend Performance Materials, LLC. “The preferences statute should be changed so that the pursuer of preference recoveries should first prove that the payments were not in the ordinary course of business and that new value was not given by the creditor.”
- Brian Shappell, CBA, CICP, NACM staff writer