Recently, I had the privilege of being one of two scholarship recipients from California to attend NACM’s 2003 Legislative Conference, in Washington, DC.  I highly recommend the Conference, as both an excellent learning tool, and as a chance to apply our skills as credit professionals outside the usual purview of handling customer credit and collection issues.

The first part of the Conference gave us an overview of various aspects of credit law, including bankruptcy and the Fair Credit Reporting Act.  Of particular interest to me was a seminar by Charles Tatelbaum, Esq., titled “Astonishing New Developments and Solutions With Bankruptcy Preferences”.  Mr. Tatelbaum gave an excellent overview of bankruptcy, starting with its roots in our Constitution and history, and walked us through the evolution of bankruptcy, up to recent developments.

Mr. Tatelbaum then discussed preference payments, their basis in law, and how creditors may avoid claims of preferential payment prior to a bankruptcy petition.  With the rising interest in pursuing preferences, it is more likely now that other creditors or the trustee may demand the return of monies paid ninety days prior to bankruptcy.  Many firms, upon seeing a preference claim, simply ‘roll over’ and reimburse the estate for the amount demanded.

He then presented us with six conditions, all of which the plaintiffs must prove are true in order to prove preference, and then five affirmative defenses which may be used if the first six conditions are all met.  There isn’t sufficient space here to do justice to Mr. Tatelbaum’s presentation, so I will cover the most interesting, and for the credit professional’s defense of his or her company’s assets, the most applicable, point.  In order for a preference claim to be valid, the debtor must be insolvent.  In most cases, even under a reorganization, the assumption is that the debtor hasn’t sufficient resources to meet its obligations to creditors.  This isn’t always the case, apparently.

The test of insolvency is whether liabilities exceed assets at the time of filing.  If they are not, then no preference has occurred.  This has the virtue of being easily provable, especially in the case of a reorganization.  If there is a positive net worth on the company’s balance sheet, which is included as part of the bankruptcy petition, preference claims can be avoided.  By way of example, Mr. Tatelbaum pointed out that K-Mart’s bankruptcy documents showed them to be solvent at the time of filing.

This was an excellent seminar, one of many interesting topics discussed at the Conference.

The second part of the conference was applying what we had learned on Capitol Hill.  We each had the opportunity to visit with staff of our respective Representatives and Senators, and present our cases concerning pending legislation on the FCRA and bankruptcy reform.  Working on behalf of NACM in this capacity was both exciting and edifying.

The 2003 Legislative Conference was well worth the time, not only for the educational opportunity it presented, but for the chance to see and experience more of what NACM does for its members.  If you have the opportunity to attend in future years, I strongly suggest you do so, and am certain you will find it as valuable as I did.