May 16, 2013
For unsecured sellers of goods, the Bankruptcy Code, in its current form, offers little in the way of protection. Reclamation as a creditor remedy has become almost universally valueless, and the prevalence of secured debt often leaves trade creditors with little hopes of recovery.
However, one of the biggest changes enacted in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was the addition of a 20-day administrative priority claim for goods sellers under Section 503(b)(9) of the Code. This provision grants companies that shipped goods to the debtor within the 20-day period preceding their bankruptcy an administrative claim that gives them a much better chance of getting paid.
Paying these claims is a requirement if the debtor wants to confirm a Chapter 11 plan, and many commentators have argued that the provision should be repealed to help debtor companies reorganize more easily, but doing so would eliminate one of the Code's only remaining trade creditor remedies worth its salt. That's why at next week's hearing of the American Bankruptcy Institute's (ABI's) Commission to Study the Reform of Chapter 11, held at NACM's 117th Credit Congress, trade credit professionals will stand up to defend the provision and support its continued inclusion in the Bankruptcy Code.
The hearing will consist of two panels, one on preferences, discussed in last week's eNews, and the other on Section 503(b)(9). Testifying on the latter panel will be Joseph McNamara, CCE, CICP, director of financial services at Samsung Electronics America, Sandra Schirmang, CCE, ICCE, senior director of credit at Kraft Foods Global, Inc. and Paul Calahan, CCE, CICP, senior credit consultant at Cargill, Inc.
McNamara, Schirmang and Calahan will attest to the value of the Section 503(b)(9) claim and how it helps them extend credit to customers who might be circling the drain. "Section 503(b)(9) has encouraged Cargill to sell on credit to potential debtors knowing that the deliveries made within 20 days will be protected with an administrative claim," said Calahan in his prepared remarks. "We often modify our credit terms knowing that our exposure will be somewhat protected."
Each panelist will also testify on their experiences as unsecured creditors and the importance of creditors' committees to the Chapter 11 process.
- Jacob Barron, CICP, NACM staff writer
Watch Next Week's ABI Hearing Live Online!ABI's Commission to Study the Reform of Chapter 11 broadcasts all of its hearings live, free of charge and open to the public on their website. Click here to watch the hearing this Tuesday, May 21 at 2:00–5:00pm PT.
Off the strength of continued growth as a hub for service centers and more generalized outsourcing, nations in Eastern Europe, Soviet Bloc countries until the late 1980s, are emerging as slightly bigger players in the business and credit world. However, the corporate information coming out of the region is not entirely trustworthy, said panelists at FCIB's Annual International Credit and Risk Management Summit in Prague, which was held May 12-14.
FCIB panelist Maria Shevchenko, director of financial content and analytics for S&P Capital IQ, began her presentation by calling Eastern Europe "the land of opportunities," noting the massive potential for several countries, but especially the Czech Republic, Ukraine and Poland, which is already a popular shared service center destination.
Credit professionals should, however, be careful not to generalize the similarity of the countries simply because their economies are newly emerging. Each country has its own set of applied standards and, even with a strong sovereign rating, their businesses can behave very differently from one another, like anywhere else in the world. Panelist Pavel Mosna, general inspector/director of risk monitoring and inspection with the Export Guarantee and Insurance Corporation in Prague, said he originally thought the countries would grow in a similar way, having come from the Communist system only a couple decades ago. "But, I saw that there are big differences in the Czech Republic from Poland or from Hungary or that Slovenia is different from Macedonia."
FCIB panelist Elisabeth Sutter-Becska, vice president, head of global export finance department, Raiffeisen Bank International in Austria, noted that problems with performing loan levels in countries like Ukraine and Russia are increasing again after a few years of improvement. Fellow FCIB panelist Fabrice Morel, deputy secretary general, Berne Union, noted there was a major spike in 2008 as well, one that showed the long-term stability of credit insurance companies in Europe in some ways, but that the four following years marked a time when issues had been mitigated in significant fashion.
The potential for another spike stems from the quality of information on the businesses in several eastern European nations. Kateryna Barabash, managing director and owner of IBcontacts, a Ukraine-based firm dealing in trade, legal and news services, said the information can be hard to analyze...if a credit manager can even get it at all. "You have to realize there is a lot of information that is incorrect or out of date," Barabash said, adding that a high level of nepotism plays into what is released by companies. "You have to verify this information with a buyer and your partner. Don't rely just on existing database information." Beyond that, she noted that perhaps the even bigger problem is getting data like financials since estimates of the rate of refusal for such requests tracks between "60% and 70%."
In short, her sentiment was, if the company is not being transparent, they are very likely hiding something important in the grand scheme of creditworthiness.
- Brian Shappell, CBA, CICP, NACM staff writer
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Retail sales were up by 0.6% on a seasonally adjusted basis in April, and up by 3.9% unadjusted year over year. The National Retail Federation (NRF) noted that stronger employment data, increased housing prices and a record-breaking stock market were the forces that drove consumer confidence in April and provided a spring boon for the sector.
"In the face of higher taxes and sequester, consumers provided the economy a bit of reprieve this month," said NRF President and CEO Matthew Shay. "Despite colder spring weather and an early Easter, consumers shopped in April, demonstrating an inherent resiliency even as the economy faces serious headwinds, including stagnant job and wage growth."
The 0.6% figure excludes automobiles, gas stations and restaurants. According to the U.S. Department of Commerce, total retail and food services sales increased only 0.1% seasonally adjusted month-to-month and 3.7% adjusted year-over-year, and those figures include the previously excluded categories.
Despite the bump, NRF noted that the gains could be temporary and that economic growth should still be anemic for the remainder of 2013. "However positive, retail sales and consumer spending in April may not necessarily translate into a stronger or healthier second quarter," said NRF Chief Economist Jack Kleinhenz. "NRF continues to forecast moderate sales growth for the year."
The latest data pairs interestingly with April's Credit Managers' Index (CMI), which dipped from 54.2 to 53.3 due primarily to weakness in the service sector and specifically retail. Although sales in the sector were up in April, consumer confidence remains a weak spot in the economy and continues to cause problems for services in general. The April Service Sector CMI dropped from 55.3 to 53.3, the lowest reading in more than a year.
To learn more about the CMI, participate in or read the latest report, click here.
- Jacob Barron, CICP, NACM staff writer
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In what is essentially an ongoing tour to promote a European directive designed to drastically reduce slow payments to European Union-based businesses, the European Commission's latest bid to increase acceptance of the measures came to Prague this week. The meeting followed the conclusion of the Finance, Credit and International Business Association's (FCIB's) Annual International Credit and Risk Management Summit. At the directive meeting, some of the Commission's own admitted that changing a culture of slow payment isn't something that will happen overnight, but just by having the new measure on the books and the support of key nations, it will begin to turn the tide.
The European Late Payment Directive, which was passed in 2011 but awaits the transposition of a half-dozen EU nations including Germany and the Czech Republic, mandates that payments of business-to-business invoices be completed within 60 days, and public authority-to-business invoices completed within 30. Should payments not occur within those windows, the creditor will have the right to add interest to the owed amount (e.g., in the case of government nonpayment, businesses can charge up to 8% in penalty interest). These standards, at least at first, only apply within the EU.
In an FCIB interview on May 14, Antti Peltomaki, deputy director-general of the European Commission's Enterprise and Industry Directorate-General, said he understands the arguments of those skeptical that the Directive will have the intended effect, but that this was a massively important step in addressing what has become a negative "underlying culture" of slow payment in places like Spain, Italy and Greece. "It is good and important to have the legal framework. Now, you have the legal measures, the ways and means" said Peltomaki. "It is up to you whether you want to do something."
The latter point addresses the skepticism as to how many businesses will ever apply the Directive to an important customer that is significantly late with a payment. However, as Peltomaki said, it represents a bit of a trump card in claims against a late-paying government or semi-government entity, or a private sector customer unlikely to return to do business with the creditor anyway, or in cases where large, potential insolvency-causing debt is involved. "It's not always the most suitable way to addressing your problem," said Peltomaki. He added that this Directive may have a better chance of working out than some previous EU-wide measures because the nations themselves are signing off on the measure as a means to protect its better businesses.
One panelist at FCIB's Summit tried to remind those wary of its potential effectiveness to take into account how largely symbolic the Directive is for the credit profession. "It's the best thing to happen in credit management in a decade because now we have European [Union] support. That gives us higher profile as credit managers," said Mark Harrison, chief executive of the Czech Institute of Credit management. "So, as a promotion for us as credit people, I think it's a good thing and should be applauded."
- Brian Shappell, CBA, CICP, NACM staff writer
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Japanese Prime Minister Shinzo Abe's 10.3 trillion yen ($101 billion) stimulus plan, colloquially known as "Abenomics," seems to be working. Ahead of the release of Japan's first quarter growth figures on May 16, economists expected the world's third-largest economy to have grown at about a 2.7% clip in the first three months of 2013, the fastest pace in a year.
Driving the expansion, as well as a measure of regional controversy, is a precipitous decline in the value of the yen. What a year ago was turning into a hedge currency for investors is now setting new all-time-low records on a daily basis, which is good news for exporters. Japan has always been dependent on its ability to do business with other countries, and the yen's decline has had an extremely positive effect on the nation's export market.
This has triggered some reactionary rate cuts from other regional powerhouses, according to NACM Economist Chris Kuehl, PhD. "South Korea has already lowered its interest rates in an unexpected move. It is likely that they will consider another such move as long as the Japanese yen keeps falling," he said. "To some degree, the decision by the Australian Reserve Bank to lower rates was also inspired by the Japanese moves."
Japan, for its part, doesn't seem to care what effect a possible currency war could have. It's too busy enjoying a new wave of confidence in the country's business community that could be at least partially driven by a unique strain of economic pride in one's country. "It is taking on a feeling of nationalism, and that is certainly consistent with the image that Abe has been cultivating," said Kuehl. "There are some observers who think this is deliberate, and an attempt to get the Japanese to rebuild their economy through a form of angry patriotism."
Japan's status as the third-largest economy in the world is relatively new. For years the country was second only to the U.S. in terms of size, but a couple of years ago, Japan's spot was usurped by China. "At the time there was not much of a reaction from Japan," said Kuehl. "China, on the other hand, couldn't stop gloating over their gain and slowly this rankled the Japanese. Now Abe is taking full advantage of this 'insult' and has made China an issue."
The one-upmanship certainly won't lead to anything as serious as armed conflict, but the two nations could be at each other's throats in an economic battle. In either case, Japan seems to be channeling nationalism to buoy economic growth, and it seems to be working for the time being.
- Jacob Barron, CICP, NACM staff writer
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At this week's Finance, Credit and International Business Association's (FCIB's) Annual International Credit and Risk Management Summit in Prague, two FCIB members—Angela Bradbury, ICCE and Daniel Van Damme—were presented with its distinguished Service, Development and Growth (SDG) Award.
Angela Bradbury, group credit and payable manager with Innospec, Inc. in the United Kingdom, and Daniel Van Damme, group working capital manager with Tessenderlo Chemie SA in Belgium, joined the short list of SDG award winners. Van Damme serves as the chairperson of the Chemicals Industry Group and Bradbury serves on FCIB's European Advisory Council and is a frequent conference speaker, taking part in the Prague summit and scheduled to present at next week's Credit Congress.
"They have both worked tirelessly to educate their staff, to really contribute and give back into the international credit community," said Noelin Hawkins, FCIB director, Europe, The Middle East & Asia. "I can't recall anyone working harder."
The award is designed recognize the valuable contributions volunteers are making to further grow and develop FCIB's member services and to encourage more people to serve. The first winner of the award, Mannes Westhuis, LL.M., CICP, Bierens Debt Recovery Lawyers, also eloquently described it as something that represents a win-win situation for today's international credit-related professional: getting in touch with customers and information on leads, while "being socially and professionally responsible."
- Brian Shappell, CBA, CICIP, NACM staff writer
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