Something for Everyone
Consumers Are the Focus, but New Bankruptcy Act Hits Businesses, Too

By Jay Dismukes

With so much attention paid in recent months to the consumer side of the new bankruptcy law, businesses could almost be forgiven for thinking they slipped under the radar of the pro-creditor legislation. But if they try to file after October—when most of the act goes into effect—they will soon find out otherwise.

“Commercial bankruptcies could last forever, and while there were a lot of restrictions that said something must be done in 120 days or 60 days, you could get indefinite extensions. You no longer can get indefinite extensions,” said Ron Fink about the Bankruptcy Abuse Prevention and Consumer Protection Act. “The good thing is that they are trying to speed up the administration of bankruptcies, especially the small ones…There are lots of little provisions that will make bankruptcy more expedited.”

For example, Fink, a turnaround-workout specialist with Tono-Bungay Consulting Inc. in Port Washington, N.Y., said that the unrestricted extensions that debtors had to accept or reject a nonresidential real estate lease have been curtailed to only an additional 90 days.

Similarly, Fink, chair of the NYSSCPA’s Bankruptcy and Financial Reorganization Committee, pointed out that the debtor’s 120-day exclusivity period to file a reorganization plan cannot extend beyond 18 months, whereas it “used to just go on forever.”

“On the business end, the act has made a situation where creditors will be better off than they have been in a long time, specifically in the preference area, because they now have more defenses available to them,” said bankruptcy and forensic accounting expert Jake Renick, CPA, of M.J. Renick and Associates LLC in New Rochelle.

Renick said that under the new law it will be more difficult for a debtor or bankruptcy trustee to recover payments made to a supplier 90 days prior to filing, because the creditor’s ordinary-course-of-business defense has been strengthened.

A creditor’s ability to reclaim goods shipped to a debtor has also improved, with reclamation rights expanded from 20 days of receipt of goods to 45 days. Renick added that vendors that ship goods to a debtor within 20 days of the bankruptcy are entitled to an administrative expense claim for any unpaid amount. This type of claim takes precedence over unsecured creditors.

Employees of bankrupt companies also benefit from the act, which extends the look-back period for priority wages and benefits from 90 days to 180 days before bankruptcy. The amount of unpaid wages that an employee can receive increases from approximately $5,000 to $10,000.

On at least one bright note for debtors, Renick observed, the look-back period to avoid fraudulent transfers, which are transactions of less than fair value, has been extended from one to two years prior to the commencement of the case.

The Bankruptcy and Financial Reorganization Committee will sponsor a half-day conference on the new bankruptcy act on Sept. 28. The event will cover both consumer and commercial bankruptcies.