By: Stacey L. Meisel and Lauren Hannon Attorneys with Becker Meisel LLC

The revisions made to the Bankruptcy Code through the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), effective October 17, 2005, brought with it an occasion for scholarly debate regarding the effect of those revisions to the various code sections. With language that leaves room for differing interpretations, and little legislative history for guidance, some revisions are causing practitioners and scholars to question what previously has been well-settled law¹. This article focuses on the revision made to 11 U.S.C. § 546(c), dealing with a seller’s reclamation rights². While the language of this section has changed, the revised Section 546(c) does not provide a new federal right to reclamation. A seller asserting a right to reclamation in a bankruptcy case still has to prove that right under state law.

Comparing Pre and Post BAPCPA Versions of Section 546(c)
Section 546 of the Bankruptcy Code contains limitations on the trustee’s avoiding powers. Avoiding powers give the trustee the ability to undo certain transactions that may have the effect of benefiting one creditor over another and disturbing the bankruptcy goal of equality of distribution among creditors³. Under Section 546(c), if a seller can prove a right to reclamation, then the trustee cannot use her avoiding powers to defeat that right. The recent revision to Section 546(c) has led some to question whether the Bankruptcy Code now gives a seller an absolute, federally created right to reclaim, or whether that right still derives from, and has to be proven under, state law. See In re Tucker, 329 B.R. 291, 298 at n.8 (Bankr. D.Ariz. 2005) (in a case decided under pre-BAPCPA law, the court questions the impact revisions to Section 546(c) might have on cases decided under the new law).

Prior to the enactment of BAPCPA, Section 546(c) read as follows:

Except as provided in subsection (d) of this section, the rights and powers of a trustee under sections 544(a), 545, 547, and 549 of this title are subject to any statutory or common-law right of a seller of goods that has sold goods to the debtor, in the ordinary course of such seller’s business to reclaim such goods if the debtor has received such goods while insolvent, but – (1) such a seller may not reclaim any such goods unless such seller demands in writing reclamation of such goods –

Cont'd next page >>