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Bankruptcy Bill Increases Rights of Suppliers of Goods

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In 2005, many commentators focused on the ways in which the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) impacted individuals filing for chapter 7 bankruptcy. However, as with many modern pieces of legislation, important aspects of the law were frequently overlooked. One of the most important provisions, which amended the Bankruptcy Code’s Section 503(b), represented a minor revolution in the way that suppliers of goods would be compensated in chapter 11 bankruptcies. While relatively restrained in its effects, BAPCPA’s revision of this section of the code created a new order of business in chapter 11 cases.

Before BAPCPA, suppliers of goods were subject to strict rules regarding the reclamation of assets from entities filing for chapter 11 bankruptcy. In order to recover goods, suppliers needed to show specific claims for goods that could be proven to exist in an unchanged form, and additional regulations further cut into the total reclamation that suppliers could expect after litigation. Furthermore, the prior legal requirements on suppliers demanded that they state their desire for reclamation within 10 days after the receipt of goods. However, BAPCPA significantly expanded the rights of suppliers, creating greater legal priority and leeway.

BAPCPA’s changes revolve around the advancement of goods received in the “ordinary course” of business in the 20 days prior to the filing to a priority status previously reserved for administrative expense claimants, a powerful veto on reorganization efforts. The act further expands suppliers’ time frame for filing reclamation requests to 45 days following delivery and removes the requirements for the goods in question to be in their original, unsold form. As a result of these changes, suppliers of goods have far more legal ammunition for seeking reclamation, even in bankruptcy proceedings involving numerous other creditors, although blanket liens and secured creditors who are undersecured remain a concern.

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