GRAND RAPIDS – The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became law on October 17. While most of the provisions of this new 240-page statute are directed at consumer bankruptcies, there are a number of provisions that affect businesses.

One of the changes that has great potential benefit for businesses is the modification of the reclamation provision of the Bankruptcy Act. Before the new law, suppliers could demand, with a written notice, to re-claim goods delivered to the bankrupt during the 10 days before the bankruptcy filing.

The new Act allows a creditor to make a reclamation claim for goods delivered to the debtor during the 45 days before the bankruptcy filing. Thus, a timely reclamation notice can result in a supplier obtaining an administrative priority for the value of the goods delivered during the 45-day period. While this does not assure that the creditor will be paid, it does place the creditor in a better position than unsecured creditors.

The new Bankruptcy Act also made a minor change in the preference section of the Act which may result in substantial benefits to creditors of a business that files bankruptcy. Many businesses have had the unhappy experience of having to return to the bankruptcy estate payments that were received by the creditor during the 90-day period prior to bankruptcy because the payments were considered to be preferences under bankruptcy law.

There are a number of defenses to preference actions, the most commonly used of which is probably the ?ordinary course of business? defense. To prevail on that defense, a creditor had to show, among other things, that the payments made by the bankrupt were made in accordance with ordinary business between the creditor and the debtor and in accordance with the ordinary business terms between other businesses in the same industry.

The new law changed the ?and? to ?or?. Thus, the creditor can prevail on the ordinary course of business defense by proving either one of these courses of conduct rather than having to prove both.

The new Act also imposes new time frames on a debtor to assume or reject unexpired commercial leases. Previously the debtor potentially could obtain unlimited extensions of time to assume or reject such a lease. The new Act requires that the debtor assume or reject an unexpired commercial real property lease within 120 days of the bankruptcy filing or within 210 days if the court permits the extension of time. No extension beyond 210 days is permitted without the lessor?s consent.

Despite the emphasis on consumers in the new Bankruptcy Act, there are a number of other provisions that affect businesses. If you have questions concerning how the changes may affect your business, contact your attorney.

Alan Bennett is a Director at Law, Weathers & Richardson, P.C. in

Grand Rapids.