Justice Department Takes Aim at Attorney Fees in Large Chapter 11 Cases

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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.

Supreme Court Upholds Credit-Bidding Rights

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In a quicker-than-expected turnaround, the Supreme Court ruled unanimously to uphold the rights of secured creditors in Chapter 11 bankruptcy-related assets sales.

The high court noted that a Chapter 11 "cramdown" plan could not be confirmed if a secured lender, often a bank, is denied the right to use debt owed to them at an assets auction in lieu of cash. The timing comes as a surprise, as a decision was not expected for several weeks, as does the unanimous vote (with Justice Kennedy not taking part in the decision) since Chief Justice Roberts expressed the importance of "the specific over the general" when analyzing the debtors' point of view in a late April hearing of arguments regarding differing credit bidding decisions in the lower courts.

Senate Judiciary Approves Small Business Reorganization Bill

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The Senate Judiciary Committee approved a bill last week that would aim to make it easier for small businesses to properly reorganize.

S. 2370, the Small Business Reorganization Efficiency and Clarity Act, was reported without amendment on a unanimous voice vote during an executive business meeting. As reported in last week's edition of NACM's eNews, in addition to imposing a number of interesting research requirements on various government agencies, the bill would also double the time by which a court must confirm a small business reorganization plan, from 45 to 90 days, and give courts the authority to compel a debtor to self-identify as a small business.

A reorganization process specifically designed for small businesses already exists within the Bankruptcy Code, but debtors can choose whether or not to use it, regardless of how small they are. S. 2370 gives courts the authority to dismiss a debtor's case for failing to identify itself as a small business debtor. NACM suggested such a change in its previous work with S. 2370 sponsor Senator Sheldon Whitehouse (D-RI).

In remarks made during the bill's markup, Whitehouse described S. 2370 as a modest group of agreed-upon amendments that gives courts and debtors more time to confirm a plan, while also eliminating "catch-all" reporting requirements that served no useful purposes. Cosponsor Senator Chuck Grassley (R-IA) and Senator Tom Coburn (R-OK) agreed with Whitehouse's characterization of the bill, with Coburn describing it as a good, common sense compromise.

The Senate is in recess until next week. It remains unclear when the full chamber might take up S. 2370, or if the House Judiciary Committee has any plans to take up a similar bill, or use the legislation as a vehicle for other related purposes.

Stay tuned to NACM's eNews for ongoing updates on this bill and NACM's other legislative priorities. If you have any questions or comments about NACM's Advocacy program, email Jacob Barron, CICP at jakeb@nacm.org.

- Jacob Barron, CICP, NACM staff writer

NACM Comment on CFPB

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Monica Jackson
Office of the Executive Secretary
Bureau of Consumer Financial Protection
1700 G Street NW
Washington, DC 20006

RE: "Docket No. CFPB-2012-0005"

To whom it may concern:

The National Association of Credit Management (NACM) has, for more than a century, represented the interests of unsecured trade creditors across the nation. These are generally businesses that extend credit to other businesses, providing the American economy with the financing that keeps companies of all sizes running.

The proposed regulation is of concern to NACM because of the credit reporting and debt collection services which NACM affiliates provide to their members. These two markets are of great importance to the nation's economy and, specifically, the day-to-day activities of commercial trade creditors. Our nearly 20,000 members frequently rely on credit reports to judge a potential customer's creditworthiness, and also rely on debt collectors in order to assist them in the vital task of receiving payment for the goods and services that they've provided to a debtor. Some of NACM's 39 affiliates offer credit reporting and debt collection services to businesses that it would appear the CFPB now seeks to regulate.

Senate Approves 3% Withholding Repeal

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The Senate approved H.R. 674 today, clearing the 3% withholding repeal bill's path to passage.

The bipartisan vote included measures to repeal the 3% tax, which would otherwise go into effect on most government contracts starting in 2013, and to enact a jobs plan that offers tax breaks to businesses that hire recently discharged veterans.

While the House must still approve the final bill before it can be signed into law, support remains strong, and full passage is likely.

NACM congratulates the Senate on approving this important legislation, and welcomes the imminent end of the 3% withholding tax, which NACM has opposed since its enactment.

Stay tuned to NACM's blog for more updates.

Jacob Barron, CICP, NACM staff writer

Veterans Jobs Bill to be Attached to 3% Repeal - Vote Set for 5:30pm

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Senate Majority Leader Harry Reid (D-NV) planned today to attach a tax cut for businesses that hire veterans to H.R. 674, which, on its own, would repeal the 3% withholding tax.

The veterans jobs bill, dubbed the VOW to Hire Heroes Act, would provide a tax credit to businesses that hire unemployed veterans that were discharged in the last five years and provide an additional tax cut to companies that hire veterans with service-related disabilities. H.R. 674 would eliminate the imposition of a 3% withholding requirement on all government contracts starting in 2013, and pay for such a repeal with a readjustment to last year's Affordable Care Act, also known as "Obamacare" or simply the health care reform bill.

Each piece of legislation enjoys heavy support on a partisan basis; the veterans jobs bill is a democratic proposal and the 3% repeal a republican one. Support from each proposal's originating party is firm.

Ideologically speaking, the tax cut for businesses that hire veterans is firmly in the republican wheelhouse, but it's something that would, at least theoretically, increase the deficit, anathema to republican legislators swept into office by the Tea Party. Meanwhile, democratic support for a repeal of the 3% withholding tax has been strong, but several party members aren't wild about paying for it by taking a swipe at the party's signature legislative achievement.

Coupling these two bills together, each with its own partisan pedigree, could potentially give democrats more of a reason to support the 3% repeal, and republicans more of a reason to support the veterans jobs bill.

Only time will tell. The vote is scheduled for 5:30pm EST.

Stay tuned to NACM for more updates.

Jacob Barron, CICP, NACM staff writer

Senate Moves H.R. 674 Forward, But More Debate Looms

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The Senate voted 94-1 in favor of advancing H.R. 674, a bill that would repeal an onerous 3% withholding requirement, set to take effect on all government contracts starting in 2013. However, a great deal of debate looms on the horizon as senators from both parties aim to address the bill’s pay-for provisions and also tack on a previously reported jobs plan that would benefit businesses that hire veterans.

Tonight’s vote was on a motion to proceed on H.R. 674, not a final vote of approval. Nonetheless, government contractors eager to see the repeal of the 3% withholding requirement can take heart in the motion’s overwhelmingly bipartisan support.

The debates that will occur this week will have more to do with how the repeal is paid for, rather than the actual repeal itself, and with any luck, the near-universal distaste for the 3% tax will translate to a relatively uneventful ride through the amendment process and swift passage.

NACM congratulates the Senate on agreeing to move forward on this piece of common sense legislation and hopes that both chambers of Congress can work together on making the repeal of the 3% withholding requirement a reality.

Jacob Barron, CICP, NACM staff writer

Senate Schedules Vote on 3% Repeal; NACM Urges Members to Make Their Voices Heard

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The Senate will vote on H.R. 674, the House-approved 3% withholding repeal bill, on Monday evening. Majority Leader Harry Reid (D-NV) successfully moved for cloture, meaning the legislation can now be considered by the full Senate.

NACM, and government contractors across the country, are hoping the vote will finally mark the end of the 3% withholding tax, a requirement set to go into effect on all local, state and federal government contracts starting in 2013. As mentioned previously, the House of Representatives has already voted in favor of repealing the withholding tax in a rare bipartisan landslide vote of 405-16.

Reid had earlier suggested that he would amend the bill, to ensure that the 3% withholding requirement would still apply to any tax delinquent contractor. The details of this proposal remain vague, but such an amendment could potentially derail the repeal effort, or present greater implementation challenges should the repeal even succeed. NACM has always supported, and continues to support, a full repeal of the withholding requirement, and encourages the Senate to enact more targeted tax compliance measures at government contractors, as even the Obama Administration has suggested.

Another measure that could find itself pinned to the repeal bill is a largely non-controversial piece of legislation that offers a tax credit to certain businesses that hire veterans.

In the final run-up to the Senate’s repeal vote on Monday night at 5:30pm, NACM encourages all of its members to contact their senators to encourage them to support H.R. 674. A full repeal of the 3% withholding tax is the only way to ensure that the nation’s government contractors can stop worrying about a potentially mandatory reduction in cash flow, and get back to the important work of growing to create jobs and provide governmental entities with the best prices on future projects.

Find your senators and their contact information by clicking here.

Jacob Barron, CICP, NACM staff writer

House Votes to Repeal 3% Withholding Tax, Senate Battle Remains

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The full House of Representatives voted overwhelmingly to repeal an onerous tax provision carrying massive negative consequences for those with government contracts.

The House voted 405-16 Thursday to repeal the 3% withholding tax, which is set to go into effect on government contracts in 2013 if the repeal proposals fall flat in the Senate. The 3% withholding tax was originally enacted as part of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005. While its goal was to address the nation's tax gap, representing the annual $345 billion in taxes legally owed but left uncollected, the provision would ultimately do more harm than good, wreaking havoc on the cash flow of companies that do business with government entities.

Challenges remain in the Senate, which most recently rejected a similar repeal measures, each which failed on party lines in acts that smacked of the partisanship rife in Congress during recent sessions.

NACM, long a vocal supporter of repealing the 3% withholding provisions, applauds the House vote and urges the Senate to follow suit.

Brian Shappell and Jake Barron, NACM staff writers

Cloture Vote on 3% Repeal Fails in Senate

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The Senate rejected a motion to end debate yesterday on a bill that would repeal the 3% withholding tax, set to go into effect on government contracts in 2013.

Earlier this week, Senate Minority Leader Mitch McConnell (R-KY) quietly introduced S. 1726, the Withholding Tax Relief Act of 2011, which is nearly identical to H.R. 674, a repeal measure in the House of Representatives that was recently voted out of the Ways and Means Committee with overwhelming support. McConnell moved for cloture on S. 1726, meaning consideration of the bill would end and the legislation could proceed further, but the motion failed in a 57-43 vote. Cloture ultimately requires three-fifths of the full Senate, or at least 60 votes.

While the House is expected to vote, and likely approve, H.R. 674 next week, the failure of the Senate’s cloture vote indicates that the entire repeal effort risks falling victim to a severe party-line divide and partisan gamesmanship.

The failed cloture vote in the Senate came along with another failed vote on a portion of the American Jobs Act, a bill championed by President Barack Obama. Senate Republicans, joined by three conservative Democrats, blocked a bill, S. 1723, the Teacher and First Responder Stabilization Act, taken from a portion of the full American Jobs Act that would’ve given states money to hire or retain teachers, police, firefighters and other emergency responders.

By carving this section of the bill out and forcing Republicans to vote on it, and reject it, Senate Democrats now have a talking point with which to hammer conservatives, arguing that they are unwilling to support tax increases for millionaires, even if those tax increases would help keep teachers and emergency responders employed.

Similarly, McConnell’s decision to isolate the 3% withholding repeal in S. 1726 gives Republicans a chance to portray Democrats, all but 10 of whom voted against the measure, as anti-business and to suggest that the entire party is committed more to taxes than economic growth.

The 3% withholding repeal, which not too long ago may have seemed like a bipartisan slam-dunk, now hangs in the balance.

Originally enacted as part of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005, the 3% withholding tax will apply to payments from local, state and federal government entities to their contractors starting in 2013. While provision’s goal was originally to address the nation's tax gap, which represents the annual $345 billion in taxes legally owed but left uncollected, and ultimately address contractor tax compliance, the provision punishes all government contractors, rather than just those that flout their tax requirements. The provision would wreak havoc on the cash flow of companies that do business with government entities, especially smaller businesses, upon whom the burden would fall hardest.

NACM has opposed the 3% withholding tax since its introduction and hopes that both parties can reach an agreement resulting in the end of this harmful provision. For more information on NACM’s effort to repeal the 3% withholding tax, click here.

Jacob Barron, CICP, NACM staff writer

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