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December 8, 2009

News Briefs

  1. SOX Proponents Raise Concerns Ahead of Congressional, Judicial Challenges
  2. NACM Member Companies Among 2009 "E" and "E Star" Honorees
  3. Senate Committee Moves to Make Small Business Tax Break Permanent
  4. Mechanic's Lien Rights and Preference Payments Argued Before Fourth Circuit
  5. Surviving Conflict
  6. Growth in Sales and Other Favorable Factors Nudge November CMI Further Into Expansion

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SOX Proponents Raise Concerns Ahead of Congressional, Judicial Challenges

The Center for Audit Quality (CAQ) recently came out in defense of the Sarbanes-Oxley Act (SOX), urging Congress not to exempt the nation's small businesses from the Act's controversial reporting requirements.

In a letter to the Senate Banking Committee, the CAQ urged lawmakers not to exclude smaller firms from SOX's reach, noting that doing so would undermine much-needed investor confidence. "If, as proposed by some members of the House of Representatives, Congress agrees to a permanent waiver for small companies, there may be little independent scrutiny of financial reporting safeguards at an estimated 6,000 small companies," said CAQ Executive Director Cindy Fornelli. "Reporting under Section 404 provides investors with meaningful information regarding a company's internal control over financial reporting (ICFR)."

A bill recently passed by the House included an amendment that would permanently exempt small businesses from SOX Section 404, which already applies to larger companies and requires an external auditor to certify that a business' internal controls are in place and effective. Without an exemption, or yet another delay, small businesses would be forced to comply with the provision starting in June 2010.

The CAQ also noted that, should an exemption be granted, financial statement revisions could increase drastically in a small business sector that already accounts for more than half of all financial restatements. "Recent research noted that restatement rates for companies that disclosed to investors that their ICFR was effective was 46% higher for smaller companies that did not have an independent audit of ICFR as compared to companies that were required to have an independent audit of ICFR," Fornelli added.

Supporters of the amendment, namely author Scott Garrett (R-NJ), argue that small businesses are already facing tremendous financial difficulties and that now isn't the time to further burden them with what some consider to be SOX's onerous reporting requirements.

In addition to the congressional challenges facing SOX, the Supreme Court heard arguments yesterday regarding the legislation's constitutionality. The ruling in Free Enterprise Fund and Beckstead and Watts LLP v. Public Company Accounting Oversight Board (PCAOB) will decide whether the SOX-created and Securities and Exchange Commission-monitored PCAOB violates the separation of powers and appointments clauses of the Constitution.

Stay tuned to NACM's Credit Real-Time Blog for updates.

Jacob Barron, NACM staff writer

NACM's December Survey Now Live!

Visit www.nacm.org today to participate in the NACM Monthly Survey for December! This month's question focuses on how responsibilities are divided among credit staff and how tasks like credit extension and collections are organized.

Participants automatically receive .1 CEUs and are entered into a drawing to win a FREE teleconference registration!

Click here to participate today!

NACM Member Companies Among 2009 "E" and "E Star" Honorees

Excellence in exporting was the common denominator uniting 21 companies from across the United States that were recently honored by the U.S. Department of Commerce as recipients of the 2009 Presidential "E" and "E Star" Awards. Eight NACM member companies were among the businesses recognized.

Seventeen businesses and organizations received the "E" Award, including five NACM member companies. They are:

• Medtronic Inc., of Minneapolis, MN
• Rust-Oleum Corporation of Vernon Hills, IL
• Sioux Corporation (formerly the Sioux Steam Cleaner Corporation) of Beresford, SD
• Southwest Windpower of Flagstaff, AZ
• The Produce Connection of Miami, FL

In addition, the following three NACM member companies were among the four "E Star" honorees:

• Dometic Environmental Corporation of Pompano Beach, FL
• Valmont Industries, Inc., of Omaha, NE
• BDP International of Philadelphia, PA

As the U.S economy tepidly ascends from the worldwide recession, exporting continues to be an optimistic beacon of opportunity and growth potential. "Trade has always been crucial to American prosperity. But, in today's difficult economic times, with other drivers of growth like consumer spending flagging, it's even more important for American industry to take advantage of every opportunity for export-driven growth," said U.S. Commerce Secretary Gary Locke.

The "E" Award is the highest U.S. government recognition a U.S. person, firm or organization may receive for supporting and significantly contributing to U.S. export activity. President John F. Kennedy created this initiative in 1961. Eight years later, in 1969, the Presidential "E Star" Award was created in order to recognize entities with continued superior performance in increasing or promoting exports. Both programs are managed by the International Trade Administration, the agency that works to improve the global business environment and to help U.S. companies compete internationally. More than 2,500 firms have been honored over the past 48 years.

Laura Redcay, NACM staff writer

Protecting Trade Creditors From Customer Bankruptcy

Join one of NACM's most popular speakers, Bruce Nathan, Esq., on December 16th at 3:00pm EST for his upcoming teleconference, "Protecting Trade Creditors From Customer Bankruptcy Risk: No Need to Cry the Blues!"

Every credit executive dreads a financially distressed customer and the risk of its bankruptcy filing, but with this session, they'll be fully-versed in the tools they can use to enhance the likelihood of getting their claims paid. Hear about various credit enhancement devices, including letters of credit, consignments, guarantees and legal remedies, that increase your chances of getting paid when a customer goes under.

Additionally, Nathan will discuss credit insurance, puts and other security devices as well as state lien laws and state/federal trust fund rights that trade creditors in certain favored industries can assert to further enhance collection rights, should time permit.

To learn more about this teleconference, or to register, click here.

Senate Committee Moves to Make Small Business Tax Break Permanent

Officials in the Senate Committee on Small Business and Entrepreneurship have moved to make two large small business tax and incentives permanent.

Legislation introduced by the top two lawmakers on the committee, Senators Mary Landrieu (D-LA) and Olympia Snowe (R-ME), would extend enhanced expensing limits enacted by the American Recovery and Reinvestment Act (ARRA), which passed earlier in 2009. The new limits allow small businesses to expense up to $250,000 of the cost of new investments, as opposed to current law, which sets the maximum expense amount at $133,000 in 2010 and $25,000 in 2011.

"Now, more than ever, small businesses need stability and incentives to move forward with getting our economy back on track and creating jobs for American workers," said Landrieu. "By extending and expanding tax measures that we know help small businesses grow, we can give these businesses the certainty they need to make new investments and the encouragement they need to help grow our economy."

Both Snowe and Landrieu have also cosponsored the New Markets Tax Credit Extension Act, which would extend the new market tax credit for another five years and provide $5 billion in annual allocation authority.

"At a time when the American economy is deep in recession, it is vital for Congress to continue to enact pro-growth policies that will expand the economy and create new jobs," said Snowe. "Extending tax incentives that have a proven track record of growing the economy will help to ensure small businesses, the engines of our economy, have access to the resources they need to access capital and continue to make job-creating investments."

Jacob Barron, NACM staff writer

Business Credit in January Will Reveal Results of "Greatest Concerns for 2010" Survey

The NACM Monthly Survey for November asked credit professionals what their greatest concerns were for the coming year, and, as it did in last year's survey, the economy still weighed heaviest on respondents' minds.

Still, some newer issues, such as an increased risk for layoffs and increasingly unfavorable terms from customers, cropped up in the survey, as did several other lingering questions about the respondents' and the American economy's future. To learn more about the survey results and what credit professionals are preparing for in 2010, check out the domestic feature in the January 2010 issue of Business Credit magazine. In addition to an in-depth analysis of the November survey, the January issue also features a host of other relevant articles, including a thorough discussion of small business export opportunities and a legal wrap-up of some exciting new decisions out of the Delaware courts.

Click here to get your subscription started today!

Mechanic's Lien Rights and Preference Payments Argued Before Fourth Circuit

Mechanic's lien rights came head to head with preference rights in a recent hearing before the U.S. Court of Appeals for the Fourth Circuit. Last Wednesday, December 2, United Rentals Inc., represented by NACM's long-time legal contributor Jim Fullerton, Esq. of Fullerton & Knowles PC, appealed a district court decision affirming a judgment that orders the company to return approximately $67,000 plus prejudgment interest to the estate of bankrupt contractor Partitions Plus of Wilmington Inc.

Both the U.S. Bankruptcy Court for the Eastern District of North Carolina and the District Court for the Eastern District of North Carolina sided with Chapter 7 trustee James Angell, who sought in 2007 to recover the allegedly preferential payments United Rentals had received in the 90 days before Partitions Plus filed for bankruptcy protection in late 2005.

Before a three-judge panel, United argued in its appeal brief that it should not have to return the funds because it would have had bond and lien rights on the payments had Partitions Plus not paid its bill before filing for bankruptcy. The payments cover rental equipment United provided to the debtor in 2004 for two bonded projects to build a hospital and town center in North Carolina.

According to United, the payments did not provide United with more than it would have received through the Chapter 7 process nor did they diminish the estate because United had a "direct security interest" stemming from its inchoate mechanic's lien on the funds owed by Partitions Plus. United further noted that the North Carolina bankruptcy and district courts are the only ones statewide and nationwide "ruling that a construction material supplier as a preference defendant must prove that it had actually perfected mechanic's lien rights prior to payment or that it would have perfected mechanic's lien or bond rights prepetition in the absence of the transfers."

In his brief, trustee Angell argued that United failed to follow the necessary steps under North Carolina law to assert its subcontractor's liens before accepting payment from the debtor. Under Fourth Circuit precedent, a subcontractor of a debtor does not have the same right to funds owed by a debtor that a bonding company might, Angell argued. Consequently, United had no secured claim when it received the payments and, thus, the payments diminished the estate.

The trustee further countered United's "new value" claim, arguing the unasserted rights to exercise the lien and bond claims do not create new value under the Bankruptcy Code. Under North Carolina statutes and case law, the inchoate lien claims that United relies on "are merely statutory remedies available to the defendant which might have resulted in a secured claim but for the fact that defendant failed to comply with the statutes," Angell said. But United countered that the trustee had relied on cases unique to the Eastern District in reaching those "incorrect conclusions" about its unexercised lien and bond rights.

While conceding that "no doubt" exists as to whether a claimant must perfect, enforce and prosecute the mechanic's lien and bond rights before either are "finally established," United alleged that the trustee "ignores the central given fact in any bankruptcy preference case:
that payment from the debtor intervened."

Because the debtor paid United the owed funds, the company could not pursue the enforcement of those rights to maintain those claims post-petition, according to United's reply brief. While the preference period encompasses only the 90 days before a bankruptcy filing, a North Carolina mechanic's lien does not require perfection until 120 days after the claimant's last work and requires enforcement within 180 days, United said. As a result, "experience and logic tell us that it will be unusual facts that a preference defendant has perfected prior to payment."

Fourth Circuit Chief Judge William B. Traxler Jr., Judge Dennis W. Shedd and Judge Andre M. Davis heard the case.

—Material drawn from "United Rentals Asks 4th Circ. to Nix Transfer Ruling," an article written by Melissa Lipman and published on the Law360 website.

Laura Redcay, NACM staff writer

Distressed Business Services

Many NACM Affiliates are involved in a national network to provide assistance in the rehabilitation (if possible) or liquidation (if necessary) of businesses in severe financial difficulty.

While courts can take several months or more to start a reorganization plan, NACM Affiliates can assist in getting a plan approved in as little as 30 days. Most helpful is the knowledge that experienced professionals are ready to step in at the most difficult time. NACM Affiliate staff members can serve as secretary to creditors' committees, provide other needed advisory services and are fully aware of the prevailing laws and regulations relevant to each situation.

Click here to learn more about NACM's Distressed Business Services.

Surviving Conflict

The day-to-day business of a credit professional, especially in today's economic environment, can present a number of potential conflicts. Be they disagreements with the company's customers or their own overeager salespeople, conflicts can crop up unexpectedly and can weigh heavily on productivity.

Yet, when it comes to dealing with them, many people are lost, giving the concept of conflict management far too little thought and, subsequently, making the situation worse before making it better. Others choose to ignore the conflict altogether, acting as though they can will it away by not recognizing it. "The word conflict brings chills down the spine of many people. We do everything we can to avoid it but it's something that's a part of life," said Toni Drake, CCE. "It's nothing to be afraid of and it isn't always a bad thing."

Drake, in the recent NACM-sponsored teleconference "How to Manage Conflict...And Survive it!," offered her uniquely credit-centric look at how to handle conflicts both outside of and within an organization. "When you have conflict, you're thinking about conflict with your customer or your debtor, maybe with the sales department," said Drake, who drew on her own experience as a credit professional to help attendees. "If you've got conflicts with this other department, you can cease to trust them if the conflict isn't handled correctly and that can create secrets."

Poorly managed conflict, Drake noted, can have an altogether negative effect on in-company interactions and wind up sacking teamwork. "We may withhold information and this breaks down the communication," she said.

On the other hand, well-managed conflict can be extremely productive and create a far more collegial, successful work environment. "Conflict can bring about new ways to problem solve; it helps us to think outside the box and it helps us to be creative," she said. "A lot of us have pat answers in what we do, but a lot of times we don't think beyond that or create new ways to solve problems. Conflict gives us an incentive for growth."

Drake also discussed other benefits of properly managed conflicts, as well as some tips of her own for how to effectively reach a compromise with other parties in a disagreement.

For a replay of this teleconference, contact Tracey Flaesch at NACM at 410-740-5560 or at traceyf@nacm.org. To learn more about NACM's teleconference series, click here.

Jacob Barron, NACM staff writer

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C4F: Employment Connections for the Business Credit Community

Growth in Sales and Other Favorable Factors Nudge November CMI Further Into Expansion

Black Friday has come and gone and the results are mixed. On the one hand there was much more traffic in the stores than last year, but the average consumer has been spending a bit less and more cautiously. The same pattern seems to have emerged in the business community, as indicated by the shifts in the Credit Managers' Index (CMI). For the first time in some months, the reports suggest that sales are rising at a pretty rapid clip. The index noted a jump from 51.1 to 55. Given that last year's number was at 34.4, this is pretty encouraging news heading into the depths of the holiday season. There was also some positive movement in terms of new credit applications and dollar collections. The new applications number went from 52.7 to 55.4, much improved from the 45.2 notched in November 2008. Dollar collections had been pretty steady for the past several months, ranging from 50 in November 2008 to 53.4 in September this year. For two months in a row that level has improved more dramatically—54.7 in October and 55.8 in November. These improvements in the positive factors are encouraging.

In general there was improvement in the non-favorable category as well, but the pace has slowed from what it was in October and September. There have been fewer disputes and fewer rejections of credit applications and a marked reduction of accounts placed for collection. The data suggest that creditors are still working to organize their financial affairs in anticipation of better times ahead. The pattern in the past has shown that creditors start to work toward catching up a few months before they anticipate getting back into higher levels of production. Accomplishing this means they need to more readily engage their suppliers.

November marks the second month in a row that the CMI crested 50, mirroring the trends identified in the Purchasing Managers' Index. The growth in credit availability remains a major concern in the business community as a whole and there are still some strong headwinds as far as the financial sector is concerned, but there has been renewed activity going into the Christmas season, which is a good sign.

NACM's economist, Dr. Chris Kuehl, indicated that this latest set of survey results reinforces some of the assessments that have been made about the future. "As sales increase and credit applications are granted, there is a sense that more businesses are optimistic about the coming year than not. It was revealed in a recent KPMG survey that business confidence is improving and the CMI provides a clue as to why. Access to credit remains a limiting factor for many businesses, but there is evidence of the logjam loosening. In conversations with credit managers and through the comments sent along with the CMI, there is a sense that there are growing opportunities for the best customers and a willingness to get engaged with those showing a plan and some progress."

November's complete report and the CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.

Source: NACM

To view past eNews issues or to visit the NACM Archives, click here.

 

 

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