[Congressional Record Volume 140, Number 145 (Friday, October 7, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: October 7, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                         BANKRUPTCY REFORM ACT

 Mr. LAUTENBERG. Mr. President, let me begin by praising 
Chairman Heflin for his commitment to getting this bill passed. This 
has been a long and difficult process; it has taken years to get to 
this point and Chairman Heflin deserves a great deal of credit for his 
refusal to become discouraged and his determination to get this bill 
passed.
  I want to comment briefly on one provision in the bill: section 209. 
I was the original sponsor of the amendment which became section 209 
and I am pleased to see that it is contained in the current version of 
the bill.
  The purpose of my original amendment and the current section 209 is 
to provide additional substantive and procedural protections for 
sellers of goods to reclaim their unpaid goods under section 546(c)(1) 
of the Bankruptcy Code. A similar amendment to section 546(c)(1) was 
included in the bankruptcy bill which died at the end of the last 
Congress.
  Currently, section 546(c) incorporates the Uniform Commercial Code's 
[UCC] principle of reclamation. In all States, absent misrepresentation 
of solvency by the buyer, a seller of goods may demand return of goods 
sold to an insolvent buyer if the seller makes that demand within 10 
days of delivery of the goods. The 10-day limit does not apply if the 
buyer misrepresented solvency to the seller; in that case, the seller 
may demand reclamation at any time.
  There are, Mr. President, two problems with the current requirement. 
First, the 10-day rule to file reclamation notices is simply too short. 
Particularly in the bankruptcy context, many businesses--including 
small businesses--need more time to file reclamation notices. Trade 
creditors typically do not learn about the debtor's insolvency until an 
invoice goes unpaid or the debtor seeks bankruptcy relief--events that 
normally do not occur within 10 days of the debtor's receipt of goods. 
Additionally, because the definition of insolvency varies between the 
Bankruptcy Code and the UCC, notice effective under one law might not 
be effective under the other. The net result is that the 10-day rule 
precludes most creditors, especially small creditors, from exercising 
their reclamation rights.
  Even if the seller meets the 10-day deadline problems remain. For 
example, the debtor is under no obligation to segregate and husband the 
goods. Again, smaller creditors are less likely to be able to preserve 
their rights. Additionally, again, even if the seller meets the 
deadline, unnecessary litigation often results. Issues related to 
truthfulness and fraud often make these proceedings lengthy and 
acrimonious. And since this litigation occurs at the outset of a 
bankruptcy filing, efforts by the court and the parties involved to 
determine the assets of the estate and settle preliminary matters are 
unnecessarily complicated.
  The second major problem with the current reclamation rule relates to 
the fact that the provision only protects goods delivered within 10 
days of the debtor becoming insolvent. As a result, creditors who 
deliver good 11 days before the purchaser files for bankruptcy have no 
protection. I recognize that any limit is inherently arbitrary, but 10 
days is both arbitrary and unrealistic. I had originally proposed a 30-
day limit; the bill before us extends the the right to reclaim goods 
received 20 days before the bankruptcy in those cases where a trade 
creditor has continued to deliver goods to a struggling company. It is 
less than I wanted but more than we have today.
  Philosophically, reclamation should encourage sellers to provide 
inventory to struggling companies. Yet the current statute, with its 
``quick trigger,'' has the opposite effect; it encourages sellers to 
withhold vital supplies rather than run the risk of seeing them 
captured by the bankruptcy process. Under the bill before us, however, 
goods received during the prior 20 days can be reclaimed only if the 
supplier has delivered goods within 10 days prior to the bankruptcy. 
Thus, trade creditors are encouraged to continue to supply purchasers 
who might be teetering on the brink--a benefit to creditors and 
struggling companies as well.
  One effect, then, of section 209 is to ease the burden of the filing 
on both debtor and seller by reducing the need for constant monitoring 
and interrogation of struggling companies and reducing the need for 
accelerated litigation at the outset of a bankruptcy filing. Section 
209 provides sellers who continue to ship goods to a financially weak 
purchaser the right to reclaim goods delivered during the prior 20 
days.
  Operationally, Mr. President, section 209 is very simple. The first 
part continues current law by providing 10 days in which a seller may 
file a reclamation notice in most situations. But, second, section 209 
will provide sellers of goods with up to 20 days in which to file 
notice of their intent to reclaim their goods in the event of an 
intervening bankruptcy. That strikes a reasonable balance between 
competing interests and will, I believe, solve many of the problems in 
the current statute.
  Again, I commend Senator Heflin for his work on this legislation and 
urge its adoption.

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