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Creditors' Rights: Securing Reclamation Rights to Reclaim Goods

reclaimation of goods.jpgWhen you are engaged in the business of supplying goods, you have the ability to reclaim these goods when the buyer fails to pay. In rare instances, buyers will purchase more goods than usual, stock up inventory, then file for bankruptcy in an effort to refuse paying for the goods. When the business to which you supply goods becomes insolvent, it may seek protection of federal bankruptcy laws in order to prevent you from recovering any money owed. Regardless of the situation, no business owner wants to ship goods to buyers for free, without payment.

Depending on the situation, you can seek to reclaim the goods from the buyer. If the buyer has not filed for bankruptcy, you can attempt to reclaim your goods under §2-207 of the Uniform Commercial Code. But, if the buyer is insolvent and filed for bankruptcy, the United States Bankruptcy Code governs your rights to reclamation.

Reclamation of Goods

When an insolvent business owner files for bankruptcy, there are certain procedures you need to follow in order to 'reclaim' your goods. The United States Bankruptcy Code, specifically §546(c), indicates that your rights to reclaim goods are not extinguished when the buyer of your goods files for bankruptcy.

In order to reclaim your goods, you need to follow the procedures outlined by the Bankruptcy Code. This requires showing:

  1. That you have a right to reclaim the goods;

  2. That the goods were sold in the ordinary course of business;

  3. That the debtor (buyer) was insolvent when it received the goods;

  4. That the goods were sold and delivered to the debtor within 45 days prior to the filing of bankruptcy; and

  5. That you sent written reclamation demand within 45 days after the debtor received the goods or within 20 days after the commencement of bankruptcy.

It is important to note that, even if you meet all the requirements identified above, you might not realize the full return or benefit from your goods because the goods might be subject to the rights of a secured creditor. The secured creditor must be a buyer in the ordinary course of business or a good faith purchaser. Unfortunately, most secured creditors qualify as a good faith purchaser. This is a roadblock to a seller's right to reclaim, and it might impair the amount of return the seller is entitled to.

Aside from the limitations identified above, if you want to have any chance of recovering your goods, you need to follow the procedures outlined above and do your best to perfect your right to reclaim the goods you sold to an insolvent buyer. If you fail to perfect your interest, and fail to submit a proper letter of reclamation, it is almost guaranteed that you will not have a priority claim for the goods in question.

Consult an Attorney

If you recently sold and delivered goods to a business that is insolvent, you should immediately contact an experienced San Jose business attorney who will advise you of the best course of action and bring you one step closer to reclaiming your goods.

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  • Santa Clara County Bar Association | 1917
  • American Inns of Court
  • CWL | California Woman Lawyers
  • Bay Area Bankruptcy | Forun
  • The State Bar of California
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