01 Sep 2017

Recent Rulings: Goods “Received” Upon Physical Possession

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According to a recent ruling by the U.S. Court of Appeals for the Third Circuit, goods provided to debtors by trade creditors are counted as “received” upon physical possession by the debtor – not when the goods are first shipped or in transit. This ruling further defines Section 503(b)(9) of the Bankruptcy Code, which gives higher priority to the value of goods received during the 20 days prior to a bankruptcy filing.

According to this ruling, if the debtor has physical possession of the good in question in the 20 days prior to filing for bankruptcy, the providing creditor’s claim receives priority equal to that of the fees owed to the debtor’s professionals.

If this occurs in a case you are administering, you would need to mark such a claim as an “Administrative Expense” in order to adjust the priority of that claim and ensure your distribution is calculated properly.

The court’s ruling is consistent with the interpretation of the meaning of “received” in the context of Section 546(c) of the Bankruptcy Code, which sets reclamation conditions, and the Uniform Commercial Code (UCC) definition of “receipt” of goods.

For more information about this ruling, click here.

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