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Vendor's Reclamation Rights Survive Lien of Post-Petition DIP Loan

By Barry M. Klayman and Mark E. Felger
November 01, 2016

In In re Reichhold Holdings US, Inc., Case No. 14-12237 (MFW) (Bankr. Del., Aug. 24), bankruptcy judge Mary F. Walrath upheld the validity of a vendor's administrative claim for its reclamation rights under Section 546(c) of the Bankruptcy Code as against a post-petition DIP lender. In doing so, Judge Walrath declined to follow cases from the Bankruptcy Court of the Southern District of New York that held otherwise.

Background

The Bankruptcy Code recognizes a vendor's right of reclamation for goods sold to a debtor if the seller has a right of reclamation under state law. A seller seeking reclamation under Section 2-702 of the UCC and Bankruptcy Code Section 546(c) must prove four elements: 1) The debtor was insolvent when the goods were delivered; 2) A written demand was made not later than 45 days after the debtor's receipt of the goods, nor later than 20 days following the petition date if the 45-day period expired post-petition; 3) The goods were identifiable at the time of the demand; and 4) The goods were in the possession of the debtor at the time of the demand.

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