A Short Series on Reclamation for Credit Managers, Part 3: HOW IT WORKS

Reclamation for Credit Managers, Part 3: HOW IT WORKS

Contributed by:
Robert S. Bernstein, Esquire
Bernstein-Burkley, P.C.


The first thing a creditor should do when it learns of a bankruptcy (or other indication of insolvency) is look to see if it has any shipments which were received by the customer in the last 45 days. If there are, sirens should go off, bells should ring and flares should shoot up into the sky! When in doubt, send the notice! Delaying, even a day, can cost your company valuable rights. If you are wrong, and a reclamation notice is inappropriate, there is no downside! The worst that happens is you wasted some time and some money. There is no penalty.

Unlike the UCC Section 2-701, which requires that a demand of unspecified form be made for reclamation, under the Bankruptcy Code, the demand must also be in writing. The written demand must explicitly state that it is “asserting the right of reclamation” and should probably also note that the reclamation is being claimed under 11 U.S.C. Section 546 and applicable state law, in furtherance of explicitly asserting the reclamation rights. In addition, the writing should reflect what items or shipments are the subject of the reclamation. That way, vagueness of the demand does not raise questions of whether items being reclaimed were within the window of reclamation.

The mailbox rule applies to this section. As long as the demand was made in a commercially reasonable manner, it is effective on dispatch. A Telex has been held to be sufficient as a writing and another case held that the demand need not be by registered or certified mail to be effective as a written demand, though for issues of proof, it may not be a bad idea to do so. A hand delivered written demand has been held to be sufficient. Although no reported case was found to discuss fax or e-mail notice under Section 546(c), faxes are generally considered to be sufficient as “writings” under the UCC. However, the use of these “instantaneous” methods is not relevant in terms of time restrictions for making the reclamation demand, because of the employment of the mailbox rule.

Next – Part 4: Cash, Lien or Claim?

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