December 11, 2014
The American Bankruptcy Institute (ABI) Commission on the Reform of Chapter 11 unveiled a long list of recommendations it will present to the US Congress that includes preservation and some expansion of creditor-critical Â§503(b)(9) rights as well as preference changes. The recommendations follow a lengthy series of ABI field hearings, including one hosted by NACM at the 117th Credit Congress in May 2013.
The ABI Commission has been studying potential changes to the Bankruptcy Code that would help streamline the increasingly complicated and costly process overall and ultimately reduce barriers to entry into Chapter 11. It argued such problems have long deterred small and medium-sized enterprises (SMEs) from filing. Commission members said adoption of the changes could provide more alternatives and flexibility to make bankruptcy work as a "safe harbor," giving relief to these businesses in areas such as unrealistic timetables and legal tactics perceived as onerous.
Of significant importance to trade creditors was the issue of Â§503(b)(9) priority claim rights for goods delivered within 20 days of a filing. ABIâ€™s Commission announced it will recommend preservation of Â§503(b)(9) as part of approximately 240 recommendations it will bring to US lawmakers in 2015. NACM members were the first to testify during ABI Commission hearings about the importance of preserving Â§503(b)(9), which many attorneys and trade creditors previously believed the ABI Commission would eye for proposed elimination. Congress enacted this section of the Bankruptcy Code as part of the 2005 changes to Chapter 11, the last on record, granting an administrative priority to any goods seller who provided products to a debtor within 20 days of the debtorâ€™s bankruptcy filing. Trade creditors have argued that the statute's protections make it easier for businesses to extend credit and do business with struggling customers. Notably, Â§503(b)(9) applies to providers of goods, but not services. The Commission recommended that critical vendor rights be codified in the Bankruptcy Code, but excluded Â§503(b)(9) from that remedy.
On preference claims, ABI will recommended only a few changes, including an increased burden on bankruptcy trustees to perform "good faith" due diligence before sending demand letters or filing complaints. The floor of small preference defenses would be raised to $25,000, and the floor of small claims venue would increase to $50,000, should Congress accept ABI's proposals.
ABI's report also recommended the elimination of Â§546(c) regarding reclamation rights and creditors' committees in cases of non-publicly traded SMEs with potentially up to $50 million in consolidated assets or liabilities. To establish a committee in the latter situation, a formal court motion would have to be made to prove to a presiding judge why committee formation would be appropriate and helpful.
Somewhat surprisingly, the Commission did not recommend significantly altering bankruptcy venue change statutes. Commission members reiterated that the report is not the Commission's final word on bankruptcy reformâ€”they expect continued dialogue on the proposals from stakeholders in the coming weeks and months before formally presenting final recommendations to lawmakers on Capitol Hill.
- Brian Shappell, CBA, CICP
For more information on the ABI bankruptcy reform recommendations, please continue reading weekly editions of eNews or check the NACM blog.
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Legislation introduced December 9 seeks to remove all restrictions, some nearly 40 years old, on the exporting of crude oil by US companies. Rep. Joe Barton (R-TX) introduced HR 5814 to update what he characterized as laws that "were passed during an era of energy scarcity."
Although it appears unlikely that lawmakers will vote on the bill this year, Barton expected for it to spur discussion at the Energy and Power Subcommittee hearing on December 11th entitled "The Energy Policy and Conservation Act of 1975: Are We Positioning America for Success in an Era of Energy Abundance?"
"The shale revolution has drastically reshaped America's energy landscape, unlocking a vast supply of untapped oil and gas," Barton said. "The most recent estimates show that the US has more than enough resources to meet our domestic energy needs." Barton maintains exports would drive "economic growth and create hundreds of thousands of additional jobs, while at the same time lowering prices at the pump. It would also diversify the world oil supplyâ€”strengthening US energy security and giving us more leverage in foreign policy matters."
Although Barton believes there is support for oil exports from a wide range of experts and stakeholders, others have questioned whether the bill will move forward. It will most likely face an uphill battle in the new Congress, said Jim Wise, NACM's Washington lobbyist and managing partner of Pace, LLP. "I believe both independent producers and refiners would oppose the billâ€”and [there will be] a fear by many members of Congress that elimination of the ban could conceivably lead to an increase in gasoline prices for consumers," Wise noted.
- Diana Mota
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November 2014 bankruptcy filings in the United States fell 16% compared with November 2013, or 74,070 to 62,403, according to Epiq Systems, Inc. data.
Of the November total, 2,248 were commercial filings, a 27% drop from the 3,085 reported during the same period in 2013. Commercial Chapter 11 filings totaled 296, or 39% fewer than the 487 filed year-on-year.
From month-to-month, November numbers were down 21% from Octoberâ€™s total. Of those, commercial filings also fell 21% from the prior month's total of 2,855, and commercial Chapter 11 filings decreased 24% from the 387 filed in October.
Bankruptcy News Roundup:
- Women's wear retailer Deb Stores Holding LLC has filed its second bankruptcy in less than four years, stating a shortage of capital left it with "old, tired stores." The Philadelphia-based operator sought Chapter 11 protection December 4 in US Bankruptcy Court in Wilmington. It plans to close some stores and sell inventory if it can't find a buyer for the business. Through September 30, it operated 295 locations.
- Delia's Inc., a retailer which caters to teenage girls, and its eight subsidiaries each filed for Chapter 11 bankruptcy protection December 7 in the US Bankruptcy Court for the District of Southern District of New York. The New York-based chain is liquidating its merchandise after it failed to find a buyer. The company lists assets of $74 million and debt of $32.2 million. Delia's opened in 1993 and owns and operates 92 stores in 29 states, according to news reports.
- Luxembourg-based Northland Resources SE halted iron ore production October 7 in Kaunisvaara, Sweden, indefinitely and announced December 8 that it and its subsidiaries (Northland Sweden AB, Northland Resources AB and Northland Logistics AB) filed for bankruptcy.
- Diana Mota
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The United States' international trade gap in goods and services data and the National Federation of Independent Business Small Business Optimism Index improved over previous months measured.
The US international trade deficit in goods and services decreased from $43.6 billion in September to $43.4 billion in October, according to the US Census Bureau and the US Bureau of Economic Analysis.
Helping to narrow the gap, exports grew to $197.5 billion, up $2.3 billion from the month prior. Of this, goods were $138 billion, while services were $59.5 billion, up from $136 billion and $59.2, respectively. Similarly, imports increased $2.2 billion to reach $241 billion. Of that total, goods were $200.7 billion and services $40.3 billion, up from $198.7 billion and $40.1 billion, respectively.
While services saw a surplus of $19.2 billionâ€”up $100 million compared with September, goodsâ€™ deficit was virtually unchanged at $62.7 billion.
The goods deficit with China decreased to $32.6 billion in Octoberâ€”Exports increased by $3.4 billion (primarily soybeans) to $12.7 billion, while imports increased $400 million (primarily computers) to $45.2 billion. The goods deficit with the European Union increased from $12.7 billion in Octoberâ€”Exports increased $1.9 billion (primarily pharmaceutical preparations and civilian aircraft engines equipment and parts) to $24 billion, while imports increased $2.8 billion (primarily cars) to $36.7 billion. The goods deficit with Mexico increased from $4.8 billion in September to $5.2 billion in October. Exports increased $2.2 billion (primarily automotive parts and accessories and computers) to $22.3 billion, while imports increased $2.6 billion (primarily automobiles and automotive parts and accessories) to $27.4 billion.
Meanwhile, the Small Business Optimism Index, compiled by NFIB, jumped two points to 98.1, marking the highest level since February 2007, it said. Collectively, index components gained a net 22 percentage points on strength of business expectations and higher sales.
"Expectations for business conditions six months out rose a huge 16 percentage points, while expectations for real sales volume rose 5 percentage points," said Bill Dunkelberg, NFIB chief economist. "Unfortunately, the index did not sprint past the average, which is typical of a strong recovery before settling back down. Instead itâ€™s been a slow slog just to reach this point. Itâ€™s a little early to declare a breakout. This performance will have to be consolidated by several more positive readings before owners are confident to hire more employees and expand their business."
The four "hard" index components did not improve, however. Job creation plans, plans for capital outlays, job openings and inventory investment plans, combined, shaved one-percentage point off of the index.
- Diana Mota
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Continued economic output strength in November for nations including the United States, United Kingdom and Ireland was not enough to counteract increasing struggles on the part of some key European Union members and emerging economies.
The JPMorgan Global All-Industry Output Index, which is produced in conjunction with Markit Economics to analyze manufacturing- and service-sector Purchasing Managers' Index data, slipped to 53.2 from October's 53.5. Though the overall index and its six key subcategories (output, new orders, input prices, output charges, employment, backlogs) all remained firmly above the 50 level that separates expansion from contraction, Novemberâ€™s performance marked a seven-month low.
"November saw global economic growth continue its gradual slowdown from the highs of the middle of the year," said David Hensley, director of global economics coordination at JPMorgan. "The results were again reinforced by slower inflows of incoming new business." Hensley added that little possibility existed for a fall into contraction territory in December, but that fourth quarter growth would almost surely be "cooler" than previous quarters.
By industry, technology equipment was the top-ranked industry and the biggest one-month gainer, according to Markit. Tourism and travel posted the second-fastest growth. Commercial and professional services, the previous leader, remained in the top five despite an easing pace of growth in November. Construction materials and media were the only industries to report a PMI in contraction territory, though declines in industries tied to automotive production and parts as well as metals and mining put each dangerously close to 50, Markit statistics indicate.
Growth in the US remained strong, but problems in other parts of the world seemed to act as a drag on US production potential more in November than most of 2014. The Markit US Manufacturing PMI declined to 54.8, its lowest point since January, and the Markit US Services Business Activity Index fell to 56.2, the worst growth pace since April. Export orders fell by the most significant pace since June 2013. It is likely no coincidence that manufacturing PMI statistics were especially problematic in the EUâ€”Germany sank below 50 to a 17-month low, France's contraction accelerated and Italy remained stagnant in negative territory. Additionally, composite PMI readings dropped in all of the BRICs (Brazil, Russia, India, China) except India, and the culprit was largely the manufacturing sector.
- Brian Shappell, CBA, CICP
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The following is a summary of economic conditions and interesting business-climate anecdotes in nations that typically receive considerably less attention than the United States, European Union or BRICs (Brazil, Russia, India, China). These findings were presented by various expert panelists and moderators during FCIB's 25th Annual Global Conference in Baltimore this fall, which notably highlighted credit professionals' escalating concerns regarding political risk and compliance issues.
Angola: Great foreign exchange (FX) liquidity because of oil, but susceptible to commodity price shocks.
Australia: Increasingly dependent on strong growth acceleration out of China as an export destination for its natural resources; finds itself in a precarious position, dangerously so, as a result.
Bolivia: Growth remains very strong because of ongoing prudent microeconomic policy. Obtaining credit insurance is becoming increasingly difficult because government politics are unorthodox, including state control of media and several other areas of importance. Ties remain stronger to Venezuela and Russia than US and the West.
Columbia: Continues its positive reinvention as pro-business.
Ecuador: Strong growth, but interventionist president hinting at introduction of a new virtual currency, though it is unclear what it is based on.
Ghana: Government accounts overextended, high level of exposure going forward.
Indonesia: Capital flight and volatile political system a concern. New hope exists on business-friendly protections promised by new lawmakers.
Mexico: High opportunity area, but becoming one of the more difficult Latin countries in which to collect from businesses; debtors regularly try to dictate terms.
Nigeria: Payment arrears for pipeline and product-marketing companies dampening risk appetite there, as does increased presence of violent Islamic militants.
Saudi Arabia: Explored setting up arbitration court for bankruptcies in the United Kingdom, but adopted its own arbitration law and set up a center in Riyadh. Remains to be seen if a Western approach is adopted.
South Africa: Low growth and real questions about political leadership, but great infrastructure in place.
South Korea: Low risk but dealing with deflation, low growth. Government still weak in managing corporations; legal system still heavily favoring locals over businesses based in other countries.
Thailand: Political instability, financial deterioration, slow domestic consumption in play. Be extremely cautious, though strong possibilities exist.
Vietnam: Exports gains remain impressive; workforce is young and skilled. But fragile banking system and small FX balances remain.
Venezuela: Lack of strong mandate for new leadership problematic, continued economic mismanagement persists. Signs of extending any economic olive branch to the US absent. Dollar shortage a pronounced problem in paying US and EU creditors. Some airlines now refuse to fly there.
- Brian Shappell, CBA, CICP
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