September 20, 2012
The U.S. Department of Justice's Trustee Program is expected to promulgate new disclosure rules this month for law firms regarding the fees they charge debtors in Chapter 11 bankruptcy cases.
Professional fees in these cases have ballooned in recent years, leaving many creditors wondering how debtors' attorneys can bill such exorbitant costs to firms that are already in financial straits. Among the rules expected to be proposed by the Trustee Program are provisions that would require firms to disclose rate increases and justify them as cases go on, as well as measures that require firms to prove that their rates are aligned with other members of their industry.
The actual debtor's cost for a Chapter 11 bankruptcy filing has long been criticized but was thrown into the public eye in the wake of the liquidation of Lehman Brothers. Court filings in March of this year revealed that the holding company paid a whopping $1.6 billion to lawyers, accountants, advisers and other professionals over the course of their case.
Opposition to the potential for increased disclosure requirements has been rampant among law firms and other legal advocates. "At the outset, the National Bankruptcy Conference (NBC) reiterates its position...that the NBC believes that the market controls the proposed fee guidelines seek to promote are not likely to be materially enhanced by the detailed, intrusive additional reporting requirements for both the professionals and the client that the proposed fee guidelines would impose," said the NBC in a comment to the Trustee Program earlier this year. "The proposed fee guidelines do not addressâ€”and, in all likelihood, cannot addressâ€”the cost drivers that have caused professional fees in large Chapter 11 cases to grow since the existing guidelines were promulgated, including that the cases themselves have, for a variety of reasons, become larger, more litigious and more complex."
Many arguments against the guidelines note that increasing disclosure requirements is likely to put upward pressure on rates, rather than rein them in as many in the bankruptcy community might've hoped. "The NBC believes that the proposed fee guidelines are more likely to engender challenges and litigation throughout the country over the extent to which courts will require compliance with those guidelines," they added. "Ironically, those challenges and litigation, and the additional burden of compliance with the proposed guidelines to the extent they are enforced as written, are likely to add to the cost of the professional fees in larger Chapter 11 cases."
The Trustee Program accepted public comment on the proposed guidelines throughout the summer, and is expected to release a new, updated plan by the end of September. Another comment period will follow the publication of the plan.
- Jacob Barron, CICP, NACM staff writer
It's Time to Take the CMI Survey!
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As NACM expands its offerings for credit professionals, its new UCC Filing Services joins its Mechanic's Lien and Bond Services (MLBS) under the umbrella of NACM's Secured Transaction Services (STS). STS was established after the fall launch of NACM's UCC Filing Services, a comprehensive system that handles every part of the financing statement life cycle under the Uniform Commercial Code (UCC). In perfecting a UCC statement, a previously unsecured creditor jumps into a priority position in the line of rights, resulting in a significantly higher likelihood of getting paid upon a debtor's default.
Offering the UCC filing service was not a new idea within NACM. To the contrary, this was part of NACM's vision even before the MLBS division was launched in 2007. "It was always our plan to offer the UCC filing service. We just wanted to ensure that the mechanic's lien and bond services we offered were first class in every way before expanding into other areas," said NACM President Robin Schauseil, CAE. "Now that we have done that, we feel we are ready to dedicate the proper attention to moving into what was always viewed as an important phase of our offerings."
The filing service falls directly in line with the objective started five years ago: helping maximize opportunity for trade creditors to get paid, even if one or more of its debtors fall into insolvency. "Taking a security interest as a secured creditor has become a necessity in these troubling economic times. Effective credit management has always been about managing priority as it relates to being the creditor in the best possible position to get paid in the event of default or bankruptcy," said STS Director Gregory Powelson.
The move into UCC filings does not change the lien filings, notice to owner, bonds and foreclosure services already in place. It simply reflects NACM's ever-growing service presence in the business community.
- Brian Shappell, CBA, NACM staff writer
Liens & Bonds: Managing the Process from a National Perspective
UCC Filings and the Best Possible Position to Get Paid
Tuesday November 13, 2012
8:00amâ€“12:30pm and 1:00â€“3:15pm, Philadelphia, PA
Click here for more information and to register.
Business and economic improvements in many parts of the African continent have often worked a little like those of Brazil, in an almost yo-yo or roller coaster fashion. Just when things are looking up, something comes along to drag progress back down...and in a hurry. At present, various forms of unrest throughout Africa, and not just among the usual suspects, appear to be waving a red flag in the eyes of businesses and investors.
In an FCIB members-only teleconference earlier this month that focused on the global economic outlook, FCIA Vice President and International Economist Byron Shoulton noted that African nations with promise continue to be held back more by lack of credit availability tied to worries about the region than because of the widely discussed global economic crisis.
Unsurprisingly, instability in places like Egypt and Libya beyond the Arab Spring clearly won't help the business perceptions of those nations. The emerging threat of a nuclear Iran nearby won't either. However, Shoulton noted a similar level of concern should center on the backward steps taken by economies that had been emerging and showing some promise, if not stability, thus threatening international investment and the availability of open lines of credit from global businesses:
South Africa: Since successes like a well-hosted World Cup that shined a positive spotlight on the nation in 2010, and its inclusion in talks among the powerful BRIC nations in recent years, South Africa's luster has been somewhat tarnished. Shoulton calls the deterioration rapid. "Governments have not been proactive in dealing with poverty. The miners' strike and police killing of more than 40 people illustrates this. There has been rampant mismanagement."
Angola: Angola has become one of Africa's fastest-growing economies. But discontent is rising amid a lengthy presidential tenure and a regime that doesn't appear to be spreading the newfound wealth largely tied to significant offshore oil earnings, said Shoulton. "People, young people especially, are unhappy. The spending of government money is shrouded in secrecy. They're even failing to pay military pensions on time."
Zambia and Sudan: Both have seen heavy investment from China, largely their natural resource holdings. However, the often low quality of life of their people hasn't changed much with this increased investment, Shoulton noted. "People are showing growing signs of discontent, and calling the Chinese things like 'new colonizers'...Workers want better pay and enhanced living and working conditions."
- Brian Shappell, CBA, NACM staff writer
Join NACM-Canada for Their 14th Annual Credit Conference and Expo
On October 25-26, the Crowne Plaza Toronto Airport Hotel will play host to NACM-Canada's 14th Annual Conference.
Join practitioners from across Canada and the U.S. as they converge in Toronto for a highly-anticipated networking event and expertly-led sessions that include:
- A Canadian Economic Forecast by EDC economist, Peter Hall
- How to Protect Yourself from Business Fraud
- Social Media Strategies for the Credit Professional
For more information on the conference, click here.
We look forward to seeing you in Toronto!
Despite negative job reports, the National Federation of Independent Business' (NFIB's) Small Business Optimism Index gained 1.7 points in August, topping out at 92.9.
Positive expectations included improvements in employment indicators and overall business conditions in the fourth quarter, as well as an increase in companies making plans for capital outlays. However, responses still indicated that few employers consider this to be a good time to expand, and political uncertainty reached a new high as small employers continue to act cautiously when it comes to growing their companies.
"In spite of a terrible jobs report from the Labor Department, and an increase in the number who view the current period as a terrible time to expand, small-business owners continue to show their resilience. Last month they were even a bit more optimistic about improvements in real sales volumes and business conditions," said NFIB Chief Economist William Dunkelberg. "However, nothing happened in August to really improve their outlookâ€”economic news was uninspiring and mixed. But it is possible that the uptick in their spirits will forecast the election outcome and the chance for a favorable resolution of our fiscal dilemma."
"If election odds start changing, owners (and consumers) may change their minds about spending, hiring and saving, but for now, expect little change in the current course of the economy," he added.
The biggest news from the index was the increase in owners expecting better business conditions in six months, which gained six points in August. Expectations in credit availability were largely unchanged, as 7% of business owners reported that all their credit needs were not met, which is the same as it was in July. An additional 31% reported all credit needs met, and 53% noted explicitly that they didn't want a loan. Financing was the top business problem for only 3% of those surveyed, compared to 23% who cited taxes, 20% who cited weak sales and 21% who cited unreasonable regulations and red tape.
- Jacob Barron, CICP, NACM staff writer
Let an NACM Affiliate Help You Before Collection Litigation is Necessary
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President Barack Obama announced his administration's latest World Trade Organization (WTO) case against China this week, at a campaign stop in the electorally-important state of Ohio.
"Today my administration is launching new action against Chinaâ€”this one against illegal subsidies that encourage companies to ship auto parts manufacturing jobs overseas," said the president. "Those subsidies directly harm working men and women on the assembly line in Ohio and Michigan and across the Midwest. It's not right; it's against the rules and we will not let it stand."
Ohio has been devastated by job losses related to the nation's automotive sector, making a Cincinnati campaign stop a logical place for the president to announce this latest enforcement action.
Specifically, the Administration has requested WTO dispute settlement consultations with the government of China over their auto and auto parts "export base" subsidy program. Under the program, China provides extensive subsidies to auto and auto parts producers located in designated regions, known as "export bases," that meet export performance requirements. According to the president and trade officials, the program appears to provide subsidies prohibited under WTO rules because they severely distort trade, and provide an unfair advantage to auto and auto parts manufacturers based in China.
"The U.S. cannot stand by and let China skirt international trade rules, especially when American jobs are at stake. China made a commitment to end these subsidies when it joined the WTO more than a decade ago, so it's indefensible for it to use this unfair practice," said Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, which has jurisdiction over international trade. "By lodging this WTO complaint, we're standing up for workers and manufacturing jobs here in the U.S. In today's competitive global economy, it's critical that we remain aggressive both fighting for American workers and opening new markets to trade. That is exactly what this complaint against China does."
Separately, the U.S. also requested a WTO dispute settlement panel to address China's imposition of antidumping and countervailing duties on more than $3 billion in exports of American-produced automobiles. This marks the second step in a process to resolve the matter following the U.S. request for formal dispute consultations in June, which ultimately failed to resolve anything.
The Administration has brought, and won, a number of cases against China, including one on China's export restraints on raw materials and a recent case, settled in favor of the U.S., on China's discrimination against American providers of electronic payment services.
- Jacob Barron, CICP, NACM staff writer
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Effects of the tepid economic rebound, especially from lowered consumer confidence and real estate values, continue to trickle down to cities and localized business throughout the United States. And though business credit risk, on a city-by-city basis, is rising on aggregate, there are some success stories among companies in the Midwest and, to a lesser extent, in areas known for the biggest struggles.
Experian's third-annual State of Credit report found that the national average business credit score, broken down by city, dropped 4.4% from last year to a level of 55. The average consumer credit score did rise very slightly, however, indicating reason for cautious optimism. Cities with the worst average business credit risk score, as determined by Experian's metrics, were Harlingen, TX; Jackson, MS; Corpus Christi, TX; Shreveport, LA; and Monroe, LA. Interestingly enough, businesses in the growing number of cities that have filed or threatened to file for Chapter 9 bankruptcy protection have not seen damage to push any of those locations into the bottom 10.
On the positive side, business bankruptcies did decline by 4% and start-up business activity rose a surprising 11.3%. One of the biggest gainers for newly-established businesses, on a city basis, is Las Vegas, one of the places hit hardest by the real estate bust and recession. In fact, though with very low levels, Las Vegas, NV, along with Phoenix, AZ and Bakersfield, CAâ€”with their own real estate strugglesâ€”all made the top 10 cities with the most improved credit scores.
Meanwhile, the five best cities based on average business credit risk score are as follows:
1. Minneapolis, MN
2. Madison, WI
3. Wausau, WI
4. Sioux Falls, SD
5. Cedar Rapids, IA
Major markets including San Francisco and Boston were also among those rating in the top cities based on average business credit risk score.
- Brian Shappell, CBA, NACM staff writer
Manual of Credit and Commercial Laws, 2012 Editionâ€”New Format, Special Price!
Now in four separate volumes to meet your specific needs. Buy whatever volumes you need, or get the complete set at a significant savings!
NACM has re-envisioned and revitalized the Manual of Credit and Commercial Laws. Not only will the new edition continue to provide essential information for credit and finance professionals, it will do so in a highly flexible and more affordable format. In its new form, the Manual of Credit now comprises four volumes that may either be purchased separately or as a comprehensive set. Chapters and appendices from the book have been reorganized under the following headings:
â€˘ Volume I: General Business Law, Related Statutes and Collections
â€˘ Volume II: Commercial and Consumer Credit Topics
â€˘ Volume III: Construction Issues
â€˘ Volume IV: Bankruptcy and Insolvency Issues
Many sections within the chapters have also been reworked, including those covering cellphone-based collection efforts, FTC rulemaking in terms of decedent estates and data security/breach initiatives at the federal government level.
Click here to visit NACM's online Bookstore for Manual features and updates, and more information about the wide array of resources available to today's credit professionals.
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