August 03, 2020

MONTH-IN-BRIEF: Bankruptcy & Finance

Janet M. Nadile, Taryn Darling

Bankruptcy Law

Reclamation Not A Basis For Administrative Claim Post-BAPCPA

By Michael Enright

The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) greatly impacted the treatment of claims for the reclamation of goods delivered pre-petition, pursuant to Section 2-702 of the Uniform Commercial Code. Prior to BAPCPA, the onset of a retail chapter 11 case typically was met with an onslaught of reclamation demands, seeking either return of recently delivered goods or the allowance of an administrative claim for the value of goods which were subject to a valid reclamation demand. Recently, the issue was revisited in Matter of Specialty Shops Holding Corp., Case No. 8:19CV405 (D. Neb. July 24, 2020), when a reclaiming supplier of goods to a bankrupt retailer asserted a large administrative claim against the debtors based on its reclamation rights.  The supplier asserted that although the BAPCPA revisions to section 546(c) eliminated the language that traditionally provided a path to allowance of an administrative claim for a reclaiming vendor, because the current version of § 546(c) does not expressly prohibit an administrative claim in place of reclamation, the Bankruptcy Court erred in denying one. The Court disagreed, observing that the “plain, post-BAPCPA language in § 546(c) makes clear it requires no such claim.” The Court also dismissed alternative arguments by the supplier that the reclamation should be compensable as an administrative claim because the secured creditors released their liens on the proceeds of those goods. The Court noted that the secured creditors’ consent to the use of cash collateral from the sale of the goods, without a showing of the existence of available, traceable proceeds for satisfaction of the supplier’s reclamation claim, did not provide a basis for allowance of an administrative claim.  Fifteen years and counting post-BAPCPA, vendors continue to argue creatively about reclamation rights, but with little success, and the window seems to be closing (or to be already closed) on the viability of such claims.

Janet M. Nadile

Counsel; Simpson, Thacher & Bartlett LLP

Janet M. Nadile is Counsel at Simpson, Thacher & Bartlett LLP.  Her practice focuses on a broad array of commercial law with an emphasis on issues regarding Articles 8 and 9 of the Uniform Commercial Code.  She advises lenders and borrowers on all aspects of drafting and negotiating collateral security documents in a wide variety of secured transactions, including credit facilities, asset based lending, secured bond transactions, project finance and funds finance.  She also advises on all matters involving collateral subject to the UCC and other statutes, frequently for the technology, media, telecommunications, automotive, healthcare and natural resources industries.  Janet created and conducts the Firm-wide CLE seminars on various aspects of secured lending.

Taryn Darling

Board Member, William H. Dwyer Inns of Court

Taryn began her career as a bankruptcy lawyer almost ten years ago. Her practice includes reorganization, insolvency, receivership, work-outs, and bankruptcy and all related litigation. Taryn has litigated at the trial level and appellate level on behalf of her clients in a number of adversary proceedings and in consumer protection litigation. Taryn’s clients include individuals, business owners, and closely held corporations and businesses. Her breadth of experience in the area of bankruptcy and insolvency enables her to take a preventive approach when clients come to her at the outset of a problem. Taryn develops creative solutions to mitigate the impact or consequences when it becomes clear that a bankruptcy or receivership is the best course of action.