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Eye On the Hill: Update on Bankruptcy, "Red Flags" and Obama Budget

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Even a cursory glance at the District of Columbia these days reveals a wealth of issues related to the world of B2B credit management. In their quest to accelerate economic recovery, Capitol Hill has taken up the mantle of topics such as bankruptcy, data security and accounting, all of which have ramifications for the country’s credit professionals.

As noted in previous editions of eNews, NACM and its Bankruptcy Work Group recently proposed changes to the Bankruptcy Code in the hopes of re-establishing the balance between the rights of debtors, secured and unsecured creditors. These alterations have been officially submitted to the House Committee on the Judiciary by NACM’s lobbyist, Jim Wise of Pace Government Relations, who noted that the committee staff’s response to the changes was largely positive. Following the Chapter 11 filing of Circuit City, which ended in liquidation, Congress took up the issue of bankruptcy reform in order to stem the tide of retailer bankruptcies and ensure that the Chapter 11 reorganization process worked as intended. However, Rep. Jerrold Nadler (D-NY) proposed a bill that, if passed, would eliminate many creditors’ rights, such as the Section 503(b)(9) 20-day administrative priority claim, and could limit the ability of trade creditors to extend financing to struggling retailers. NACM’s changes counter the Nadler bill’s provisions with an expansion of creditors’ rights which would allow for greater financing capabilities and aim to make vendors more likely to extend credit when a company is in Chapter 11.

In other news, the Federal Trade Commission (FTC) recently delayed enforcement of the "Red Flags" Regulations, an issue that NACM has covered thoroughly from its passage. The FTC’s stated purpose for the three-month delay was that it would give Congress greater time to consider the regulations and give associations, such as NACM, more time to share guidance with members about complying with the regulations. NACM’s Government Affairs Committee is keeping a close eye on the regulations and considering whether or not the FTC has overstepped its Congressional mandate in making the regulations vaguely apply to business creditors instead of just consumer creditors. Updates can be found in eNews and on the advocacy page on NACM’s website (www.nacm.org).

In terms of accounting, President Barack Obama’s budget stipulates that businesses must account for inventory differently than in previous years, switching from the concept of last in, first out (LIFO) accounting to first in, first out accounting (FIFO). LIFO accounting refers to a strategy where a company records the last units purchased or produced as the first units sold. While in many instances this isn’t the absolute truth, this lowers business taxes since, due to inflation, prices rise over time. This makes the most recent goods made or sold typically the most expensive in a company’s inventory. LIFO accounting then reduces a company’s profit on a financial statement and, in turn, reduces the potential tax burden. If the new budget passes, LIFO will be replaced with FIFO, meaning companies will be required to report the oldest product as the first shipped, leaving the newer, more expensive goods sitting in the warehouse as assets to be taxed. This measure will raise tax revenue for the government by raising the amount businesses have to pay, but also could affect the way a company’s finances look on paper. The National Association of Manufacturers (NAM) has come out against the measure and NACM’s Government Affairs Committee is considering whether similar action is necessary to protect creditors.

As with all government affairs and advocacy, NACM depends on you, the member, for input and information. Please send any stories, experiences or thoughts related to bankruptcy changes, "Red Flags" Regulations, accounting changes or any other pressing issue to jakeb@nacm.org. Make your voice heard!

Jacob Barron, NACM staff writer

National Association
of Credit Management

8840 Columbia 100 Pkwy.
Columbia, MD 21045
Phone: 410-740-5560
Fax: 410-740-5574

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