The Customs Business Fairness Act(H.R. 2261)

Customs brokers and sureties are seeking a technical change in the bankruptcy laws to provide relief for customs brokers who have paid duties to Customs and Border Protection (CBP) on behalf of importers who subsequently file for bankruptcy.

Importers and Bankruptcy: When an importer-client files bankruptcy, the most immediate and troublesome threat is an action by the bankruptcy trustee or debtor to recover payments made to/through the customs broker to CBP by the importer in the 90-day period prior to the filing of the bankruptcy petition. This can amount to substantial amounts of money — often well into the six-figure range. This so-called “claw back” period is allowed under Section 547 of the Bankruptcy Code to avoid preferential treatment to any one creditor. In these circumstances, the customs broker is required to pay to the trustee any monies received from the debtor (or advanced to CBP by the broker on the debtor/importer’s behalf) during the 90-day period prior to the bankruptcy filing.

Subrogation in Bankruptcy: Generally, when a creditor pays a debtor’s debt owed to another creditor (for example, the US government), the paying creditor is subrogated to the rights of the creditor receiving payment. In effect, the paying creditor can “stand in the shoes” of the receiving creditor. Since CBP is granted a “priority” under the Bankruptcy Code for claims against a bankrupt importer, any payment directly to the agency from the importer during the 90-day claw-back period would not be considered a preferential payment. If a customs broker could be subrogated to the priority rights of CBP, any payments from the importer to CBP via the customs broker during the 90-day period would likewise no longer be subject to a preference payment recovery action. Recognizing the value of customs brokers’ role in advancing duty payments, Customs itself attempted several years ago to assign its priority status under the Bankruptcy Code to customs brokers through regulation — an effort that was deemed by the courts to exceed the agency’s authority, ruling that it was up to Congress to make changes in the Bankruptcy Code.

Proposed Technical Bill: Subrogation rights are derived from common law and ordinarily would come into play, except for the fact that Section 507(d) of the Bankruptcy Code specifically disallows subrogation with respect to many of the enumerated priorities. In the House, H.R. 2261, introduced by Reps. Peter King (R-NY), Greg Meeks (D-NY) and other colleagues from around the country, provides a technical amendment to Section 507(d) that, in effect, would allow subrogation for customs brokers or sureties who have paid duties to the government on behalf of a bankrupt importer.

If you have not reached out to your representative, we urge you to do so now. If you have reached out, please follow up until you receive a response. If you need any help, please reach out to the AIFBA so that we can assist you. Email aifba@aifba.com

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