Are reclamation claims heading for oblivion where the debtor has a secured inventory lender?(Credit Column)

Business Credit, September, 2004 by Nathan, Bruce S.

Introduction

A trade creditor's state law right of reclamation is supposed to be a leg up for collecting a claim for goods sold and delivered shortly before a customer's insolvency. However, court decisions that deny reclamation relief, based on the superior priority status of the buyer's floating lien inventory secured lender, are undermining reclamation as a remedy for trade creditors.

In In re Pittsburgh-Canfield Corp., the Wheeling-Pittsburgh Chapter 11, the United States Bankruptcy Appellate Panel for the Sixth Circuit (the "Sixth Circuit BAP"), the equivalent of the United States District Court, recently upheld the denial of relief to reclaiming sellers that otherwise satisfied all of the state and bankruptcy law requirements fur...