September 30, 2010
A bankruptcy reform bill proposed by Sen. Sheldon Whitehouse (D-RI) was tentatively scheduled for markup in the Senate Judiciary Committee today, September 30. S. 3675, the Small Business Jobs Preservation Act of 2010, would create a new bankruptcy procedure for small businesses that would allow them to reorganize more quickly and effectively, with the hope of reducing the possibility of liquidations and preserving American jobs.
NACM has met with officials in Whitehouse's office repeatedly to discuss the bill's provisions, and has also offered its own suggested amendments to make the bill more effective. In its last letter to Whitehouse, NACM contended that the bill's proposed small business reorganization procedure should not be elective, as it is in the bill's current state, and that the bill should preserve the right for creditors to form a committee. The letter also suggested that the bill clarify which parties may file a reorganization plan in these cases, as the statute currently would only allow debtors to do so. NACM suggested that a creditors' committee or trustee also be allowed to file plans.
In its most recent meeting with Sen. Whitehouse's office this past Monday, NACM learned that debate on the bill could fall by the wayside as Congress continues to work through a number of other issues prior to returning home to begin campaigning for the November elections. Should action on the bill be delayed, it could move in a lame duck session before the end of the year or sometime in early 2011.
Most notably, the bill has offered NACM and trade creditors the chance to advocate for sensible reform to the Bankruptcy Code's preference statutes. "NACM continues to maintain its position on preference reform, which is that the burden of proof for a preference claim should be shifted from the creditor to the debtor or trustee," said NACM in its last letter to Whitehouse. "Philosophically, the current preference statute considers creditors guilty of receiving a preferential payment until they can prove themselves innocent, violating a fundamental tenet of American jurisprudence: that individuals are innocent until proven guilty. Shifting the burden of proof to the trustee would align the preference statute with this fundamental concept and, moreover, would also be consistent with the goal of S. 3675."
Indeed, since preferences fall hardest on the nation's small businesses, shifting the burden to the debtor would allow trade creditors to maintain their business, while also increasing the chances that they would sell goods to a bankrupt debtor on credit when the debtor is most in need of financing. The revision of this statute would be a win-win for small businesses, creditors and debtors alike.
If you have any experience with preference abuse or thoughts on preference reform, please email them to email@example.com. Stay tuned to NACM's Advocacy page and Credit Real-Time blog for future updates.
Jacob Barron, NACM staff writer
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President Barack Obama signed into law early this week the Small Business Jobs Act (H.R. 5297) designed to help U.S. small businesses through tax cuts and a government-run loan pool. The bill and its passage were seen as crucial for Democrats who pushed it in advance of an October recess for lawmakers to finish campaigning ahead of the upcoming general election. But not everyone in the small business community finds the effort to be worthy of a sigh of relief.
Months of partisan-fueled idling for the bill on the Senate side ended in mid-September when a pair of retiring Republicans—Sens. George Voinovich (OH) and George LeMieux (FL)—joined Democrats in an effort to end debate and move toward a quick floor vote. Its framers said the cornerstones of the bill include an array of tax cuts and the establishment of a lending fund to provide capital to small, "viable" community banks to increase lending to smaller firms. The fund is designed to be performance-based and would incentivize those lenders that extend new credit by decreasing the dividend rate banks pay as they increase lending. The legislation was also purportedly designed to be deficit-neutral and potentially reduce the tax gap.
The signage drew support from a number of pro-small business associations including the American Subcontractors Association, the Equipment Leasing and Finance Association, the National Restaurant Association and the Association of Manufacturing Technology. However, some state-level officials within the National Federation of Independent Businesses criticized the bill, arguing that it doesn't address the most significant problem facing U.S. small businesses: the ability to compete with big business at a time when consumer spending is scant. Others noted the bill was better than nothing, but that it appeared unnecessary to establish a large fund when loan demand from small businesses has been tracking at very low levels, even as banks have noticeably reduced credit standards from recent years.
Additionally, conspicuous in her absence at the bill's signing was House Small Business Committee Chair Nydia Velazquez (D-NY). Though notably pro-small business, the New York lawmaker was among the few House Democrats who voted against the final bill over concerns that, in the way it was constructed, small business would not get the type of help they need most.
Still, it was widely held Democrats believed they needed this legislative effort to move forward to combat talk of a lackluster economic rebound, especially for badly struggling American small businesses. Most Republicans argued against the measure as government intrusion on free markets and another costly measure on top of previous efforts. Part of the vitriol attached to the legislation could be traced to an early move by the Democratic leadership in the Senate to place strict limits on the GOP's ability to offer amendments on the proposal as well as the jockeying on the part of the increasingly divided parties leading up to a one of the more hotly contested general elections in recent memory.
Among the key provisions in the Small Business Jobs Act are measures that would:
- Create $30 billion small business lending fund.
- Raise maximum for Small Business Administration loans to $5 million from $2 million.
- Allow up to $500,000 on capital expenditures.
- Allow write-offs up to $250,000 on improvements at restaurant, retail and retail properties through the end of 2011.
- Allow write-offs of half the cost of new depreciable property, such as many types of construction equipment.
Brian Shappell, NACM staff writer
The sun sunk below the horizon leaving behind streaks of red and orange...
It's time once again to submit your anecdotal credit stories for NACM's Credit Words Contest. Earn cash and Roadmap points if you're a winner and Roadmap points if we publish your story. Tell us about the biggest success, proudest moment or most humorous situation experienced during your career. It's not a perfect world either. You can tell us about an unexpected turn in what should've been an easy task, or even a story of failure that will serve to help other credit professionals in the future. The possibilities are endless!
Submission deadline is November 1, 2010. Read the contest rules and get additional details in the September/October issue of Business Credit, or by clicking here.
Much of the keynote speech by international economist Byron Shoulton at last week's FCIB New York International Round Table in New York City centered on the emerging trade rift between the U.S. and China. Perhaps unsurprisingly to those in attendance, the nations appear to be firing some early shots across one another's proverbial bow in what some fear will spiral into an all-out trade war.
As an increasingly strong economic powerhouse, China is unlikely to be publicly bullied into any significant changes to its currency, a simmering sticking point with U.S. lawmakers and exporters, said Shoulton. That hasn't stopped U.S. lawmakers from making the widely perceived undervaluation of the Chinese currency, the yuan, an increasingly significant campaign issue. In fact, the House passed a proposed bill September 29 to help the U.S. Commerce Department assess duties on Chinese products more easily. The Senate has no plans to pick up the measure before November, if then. Those in support say China's improperly valued money acts an unfair trade advantage and has fueled near-record export-heavy imbalances. China, threatening that continued movement toward a "trade war" will have a negative impact on international relations, fired at the United States this week by announcing plans to place high tariffs on American chicken imports. The nation's Ministry of Commerce alleged U.S. producers have been "dumping" (selling) chicken products there at abnormally low prices. The move preceded by hours a World Trade Organization ruling that U.S. restriction on Chinese chicken exports, enacted in 2004 purportedly in response to fear of a bird flu outbreak, was an unfair violation of international trade rules.
Shoulton, like NACM Economic Advisor Chris Kuehl, Ph.D. earlier this year, intimated that the U.S. publicly pressuring the Chinese leadership to revalue the yuan likely would amount to an exercise in futility: "China is going to do it at their own pace. They're not going to be pushed around. They're in the catbird's seat [economically]; they can afford to not allow themselves to be pushed around."
Moreover, Shoulton speculated that China would likely become a reserve currency in time. Given China's standing in the economic world at present, it would be "smart" to move in such a direction, he noted: "It's going to take a while but there's no stopping it. It will happen. It will be good for the world."
The Economy at Home
Another obvious focus of Shoulton's keynote speech was the U.S.'s slow, and far from steady, rebound from the recession, a turnaround the Obama Administration believes can be accelerated by a greater commitment to exporting to nations like China, India and Brazil. Shoulton outlined a number of problems that, while unlikely to force a double-dip recession, could keep the U.S. economic recovery somewhat muted over the next couple of years. Chief among them is a still-sputtering housing sector, uncertainty regarding what area will fuel the next economic boom (hint: housing will not do so as it did last decade) and the fact that the American economy remains "fat with debt." All of these factors could contribute to keeping unemployment at elevated levels.
"It could be five years before we return to full employment [5% unemployment] in the U.S.," Shoulton told Round Table attendees.
More information from FCIB's New York International Round Table, including an international snapshot of business credit and economic conditions in more than a dozen nations, will be available in the upcoming November/December issue of Business Credit Magazine.
Brian Shappell, NACM staff writer
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NACM's two 90-minute "Added Advantage" teleconferences scheduled for next week offer something to every credit professional, whether they're seeking an in-depth look at combating fraudulent corporate accounting practices or a unique industry-specific look at developments in bankruptcy since 2005.
The first presentation, "False Corporate Bookkeeping and Reporting," will take place on Monday, October 4 at 3:00pm EST. Led by Scott Blakeley, Esq. of Blakeley & Blakeley LLP, this teleconference will focus on financial statement analysis as well as the recent financial regulations and legal decisions that have ramifications for credit professionals looking for an accurate picture of their customers' finances.
Given the still sorry state of the nation's economy, credit professionals must be especially aware of customers taking steps to stay afloat. Many may resort to less scrupulous options such as fraud and misrepresentation in order to get a vendor's product on credit, while lacking the means, or sometimes even the intention, to ever pay for it. Blakeley will lead attendees through the red flags credit professionals should look for when measuring risk, discuss the steps creditors can take to protect themselves, and illuminate the civil, criminal and employment issues surrounding the misuse of financial statements. To learn more, or to register, click here.
On Wednesday, October 6 at 3:00pm EST, Bruce Nathan, Esq., Vincent D'Agostino, Esq. and Scott Cargill, Esq. will lead utility and energy credit professionals through the complex and unique world of bankruptcy as it applies to their industry. "Utility Customer Bankruptcy Issues" is the first teleconference of its kind geared specifically toward utilities and promises to deliver a thorough look at the Chapter 11 process and the rights and obligations unique to utility creditors in the world of bankruptcy.
"Given the troubled economic climate and the increase in bankruptcies, and the good likelihood that they'll be seeing more bankruptcies in the future, this program is an opportunity for utilities and other energy companies to find out what their rights are in a bankruptcy case and how they should be preparing for and dealing with a bankruptcy filing," said Nathan, noting that although the title refers to utilities, energy company credit professionals also stand to gain a great deal of information from this program. "Providers of energy who aren't necessarily considered utilities also have special protections under the Bankruptcy Code, which will be discussed during the program," added Cargill.
"The important thing is we want to make sure that these utilities know that there were certain things they were not able to get before the  amendments and certain things that debtors offered, that now are embedded in the Code," said D'Agostino. "These types of safety nets for utilities are going to be important to discuss."
To learn more about this one-of-a-kind teleconference, or to register, click here.
Jacob Barron, NACM staff writer
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Four Senate Democrats recently joined their Republican colleagues to defeat a bill that would've punished firms for shipping jobs overseas.
The Creating American Jobs and Ending Offshoring Act of 2010, introduced by Sen. Richard Durbin (D-IL) last Tuesday, garnered only 53 votes, seven shy of the 60 votes necessary to overcome the GOP filibuster. Republicans were joined in their opposition by conservative Democrats Ben Nelson (NE), Jon Tester (MT), Mark Warner (VA) and Max Baucus (MT), along with independent Joseph Lieberman (CT).
Democrats introduced the bill after it became clear that they'd have to abandon plans to extend Bush administration tax cuts for the middle class. Many had hoped to reach an agreement on the matter before the November election, but divisions in the party about which tax cuts should be extended and to whom they should apply led Senate leaders to delay the vote and turn to the issue of outsourcing, which is considered anathema in many U.S. manufacturing communities.
Some objections to the bill focused on its cost in relation to the country's already enormous deficit. "I could not vote for this particular bill for a pretty basic reason: it wasn't paid for," said Tester. "We can—and we should—reinvigorate our manufacturing industries without adding another $700 million to our debt."
But other opponents of the bill argued that their problem with the bill had less to do with its budget than the threat it posed to American competitiveness overseas. "The companies this bill targets, by and large, aren't opening overseas subsidiaries to make products for Americans; they're moving overseas to serve foreign markets, in addition to the markets they already have in place here, and that creates jobs here in the United States," said Senate Minority Leader Mitch McConnell (R-KY) in a floor statement. "This bill is not a serious attempt to address a problem. It's a purely political exercise aimed at making a good impression."
Among the bill's provisions were a measure that would've exempted employers who bring overseas jobs back to the U.S. from employment taxes for two years, and another broad measure that would've denied any tax deduction for expenses incurred in the process of closing U.S. operations while expanding them overseas. The bill also would've eliminated the deferral of tax on income attributable to property imported into the U.S.
Jacob Barron, NACM staff writer
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September Bankruptcy News Roundup: City of Harrisburg, Philadelphia Newspapers, Blockbuster, Circuit City
Though corporate bankruptcies are trending downward and municipal filings have failed to surge at the expected rate as the economic recovery takes its time to round into shape, September was still a busy month for bankruptcy-related news.
Harrisburg, PA. Pennsylvania's state capital, long rumored to be on the brink of Chapter 9 bankruptcy appears closer than ever to the brink after rejecting a state-funded advisor in lieu of seeking guidance on officially filing. Though a point of fierce debate among city policy-makers, the City Council's vote this week to seek advice on filing bankruptcy seems a death knell for those hoping to avoid the dubious fate. Earlier in the month, Pennsylvania Gov. Ed Rendell (D) hurried state aid to the city to avoid default on debt service despite the governor's long-held opposition to Harrisburg seeking bankruptcy as a solution to its massive budget woes. Harrisburg, PA took multiple hits to its credit rating earlier this year, largely because a plan to renovate a trash incineration plant for the city went awry. The project came with more than $200 million in debt it guaranteed for the retrofit project, and several officials have argued they have few options short of doubling property tax rates or fire-selling city-held assets.
Philadelphia Newspapers. For the second time since April, a group of investors spearheaded by Angelo, Gordon & Co. has won an auction to purchase the assets of Philadelphia Newspapers LLC, including the Philadelphia Inquirer and Daily News. The latest bid was made on Sept. 23 and is worth about $105 million, well below the $139 million April agreement with the lenders, now operating under the name Philadelphia Media Network. The previous deal fell apart because a local Teamsters Union representing drivers balked at renegotiating terms such as pension benefits that no less than 13 other unions saw fit to sign on for. U.S. Bankruptcy Judge for the Third District Stephen Raslavich, who barred Philadelphia Media Network from using a controversial but very common credit bidding tactic to purchase the newspapers and other assets in April, ordered the Sept. 23 auction to be a cash-only, "as is" purchase that would need to be settled by mid-October.
Blockbuster. The rental video chain's long rumored fate of Chapter 11 bankruptcy finally came to fruition on Sept. 23. With more rental choices, Netflix's delivery service and Redbox's low-cost kiosks located everywhere from supermarkets to fast-food drive-through lines, Blockbuster's revenue stream has steadily declined. Since 2008, Blockbuster closed nearly 20% of its 5,500+ stores with plans to quickly fold at least 500 more. Blockbuster has tried to venture into areas where its competitors have thrived but largely did so in a not-so-profitable catch-up mode.
Circuit City. The lengthy bankruptcy road for the "big box" retail electronics chain finally appears to be winding down as its liquidation plan was approved by a federal bankruptcy judge in Richmond, VA. Unsecured creditors, who were owed about $1.8 billion, will split about $450 million. Most secured creditors were paid previously. Circuit City filed for bankruptcy in November 2008 and finished closing stores within six months.
Brian Shappell, NACM staff writer
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