Magazine article Business Credit

NACM's Senate Testimony Advocates Creation of Chapter 10

Magazine article Business Credit

NACM's Senate Testimony Advocates Creation of Chapter 10

Article excerpt

On July 30, 1991, representatives from NACM met in Washington D.C. to testify to the Senate Judiciary Subcommittee about changes to the Bankruptcy Code relating to the bankruptcy reorganization of small-to medium- sized businesses.

The Bankruptcy Reform Act of 1978 consolidated all business reorganization into a new Chapter 11. The testimony argued that while this new chapter included the best aspects of each of the three reorganization chapters of the 1898 Bankruptcy Act, it failed to differentiate in the treatment afforded to debtors based on the size and complexity of their businesses.

"With business failures increasing at a rate exceeding 40 percent this year over last, the members of NACM, as well as all credit grantors, have experienced an increase in losses occasioned by the business failures," testified Charles M. Tatelbaum, bankruptcy lawyer with Johnson, Blakely, Pope, Bokor, Ruppel, and Burns, P.A., Tampa-Clearwater-Port Richey, Fl, and the legislative and bankruptcy counsel to NACM.

It was explained that long before the current economic downturn, all parties interested in the bankruptcy process recognized the need to create a vehicle whereby small-to medium-sized debtor entities could be reorganized without the need to comply with the many time-consuming and expensive burdens of a Chapter 11 reorganization.

"Chapter 13 was created for individuals with a limited amount of debt. Chapter 12 was then created to aid the family farmer. Nothing, however, has been developed by statute to deal with the increasing difference in the reorganization process needed by the smaller business entity," argued Tatelbaum.

NACM formulated a bankruptcy task force to come up with a favorable solution to the problems involved with business reorganizations. It found that Bankruptcy Judge A. Thomas Small of the Eastern District of North Carolina in Raleigh developed a group of local rules which have acted as a prototype for the expeditious handling of small-to medium-sized reorganizations. His procedures protect the interest of debtors and creditors alike.

As a result of an extensive study of Judge Small's procedures, NACM testified to the subcommittee that it has developed proposed legislation which involves the creation of the new Chapter 10 to the Bankruptcy Code dealing with small- to medium-sized business debtors. This new legislation incorporates the provisions of the current Chapters 11, 12, and 13 in order to be able to develop a procedure best suited to the unique problems of a small-to medium-sized business. …

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