To most sellers of goods, reclamation means nothing--never heard of it. And in most instances, the seller is not going to get its goods back anyway. But, there is a feature of the reclamation remedy recognized by the Bankruptcy Code which bears consideration.
First a brief summary. Under the Uniform Commercial Code, a seller of goods has the right to reclaim those goods under certain circumstances, and within a specified period of time. This provision is codified in Alabama at Ala. Code Section 7-2-702. The Bankruptcy Code, in Section 546, recognizes this remedy by making the rights and powers of a trustee subject to the right of a seller to reclaim its goods. But, that's not what I want to talk about, for this reason. Most of the time, a debtor's inventory is subject to a floating security interest. Once the seller's goods enter the debtor's inventory, the goods become subject to the floating security interest and and can't be reclaimed unless their value exceeds the secured debt (not likely). Is the seller now shot on the ground?
Section 546(c)(2) directs you to Section 503(b)(9) of the Bankruptcy Code. Section 503(b)(9) provides for an administrative expense claim for the "value of any goods received by the debtor within 20 days before the commencement of a case . . . sold to the debtor in the ordinary course of such debtor's business." The seller may not be able to reclaim its goods, but an administrative expense claim puts you ahead of unsecured creditors in the event the Trustee distributes a dividend.
So what should you do? First, follow the UCC procedure for giving proper notice of reclamation, in the event your goods have not become subject to a prior security interest. On my website you will find a summary of the reclamation procedure, and a sample notice letter.
Second, file an administrative expense claim under 11 U.S.C. Section 503(b)(9) for the value of the qualifying goods. This is very simple. In my years as a Trustee, however, I've yet to see one. So if you sold goods to a debtor, in the ordinary course of business, within 20 days before commencement of the bankruptcy case, call your lawyer. You might not get your goods, but you could have an administrative expense claim ahead of unsecured claims in the event there are assets for distribution. Think of it as moving closer to the front of the line.
