Months after the House passed a similar aid package for U.S. small businesses, the Senate has followed suit thanks to a pair of Republicans who broke ranks not only by voting to end debate on the matter on Sept. 14, but for the legislation as well. The bill could be inked into law before month's end, when Captiol Hill politicians return to their states and districts for the last month of campaigning in an intriguing and increasingly heated 2010 General Election.
The National Association of Credit Management (NACM) recently sent a new letter to Sen. Sheldon Whitehouse (D-RI), the culmination of a series of meetings among staffers in Whitehouseâ€™s office and members of NACMâ€™s Government Affairs Committee. Below is a copy of the letter as it was delivered:
Sent August 27, 2010
Honorable Sheldon Whitehouse
Hart Senate Office Building
Washington, D.C. 20510
Dear Senator Whitehouse:
NACM greatly appreciates the chance to work with your office and with others on S. 3675, the Small Business Jobs Preservation Act, in order to make it as beneficial as possible to small businesses and the economy at large. However, in its current form, we have found numerous provisions that we believe would do more harm than good for both the debtors and creditors involved in bankruptcy cases, as well as for the greater American economy. We continue to support the principles of efficiency and expediency in bankruptcy, but must object to certain specific portions of the bill that we believe are contrary to its stated goals.
As mentioned in the first story in yesterday's edition of NACM's eNews, here is NACM's latest preference-specific issue brief.
NACM Issue Brief With Suggested Changes to Section 547 - Preference Statute
Under bankruptcy law, Section 547 of the Code requires that all payments made by a debtor to creditors within 90 days of a bankruptcy filing must be returned to the debtor's estate, unless the creditor can prove that the payment was made in the "ordinary course of business," that "new value" was given, or that the transaction was a contemporaneous exchange for new value. The fundamental premise of this section of the Code is to prevent any one creditor from receiving favorable treatment over other creditors.
Typically, the trustee for the debtor's estate or more recently the liquidating trust under a Chapter 11 plan will issue demands to all creditors who received a payment in this 90-day period without regard to any of the defenses. The NBRC wrote that there is an argument that "...Section 547 leads to abusive preference recovery suits by bankruptcy trustees who bring actions indiscriminately, without properly analyzing the creditor's available defenses, and to obtain settlements by creditors because of the litigation costs associated with defending these actions."
A group of prominent Senate democrats recently called on Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro to require fuller and more accurate corporate accounting disclosure.
Specifically, the group urged Shapiro to use her agency's existing authority to prevent instances where corporations conceal their debts and financial weaknesses. In its letter, the group of six Senators cited Lehman Brothers' use of an off-balance sheet "Repo 105" transaction to hide its debts and project a falsely positive portrait of its financial state.
Readers of NACM's Credit Real-Time Blog and Advocacy page will notice that NACM has been in discussions with Senators on both sides of the aisle regarding the potential for bankruptcy reform. The first step toward opening and revising the Code was recently taken by Sen. Sheldon Whitehouse (D-RI), as he introduced the Small Business Jobs Preservation Act of 2010.
As its name implies, the bill frames the reform of the Chapter 11 process, as it applies to small businesses, as a job saving measure. Whitehouse has previously chaired a hearing, in the Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts, entitled "Could Bankruptcy Reform Help Save Small Business Jobs," during which some high-profile witnesses suggested opening up the Chapter 12 process for use by small businesses. While the now-introduced legislation isn't an outright opening of Chapter 12 to apply to smaller firms, rather than to just small family farms and fishermen, many of its tenets are inspired by Chapter 12.