Reclamation Claim
A Reclamation Claim is a seller’s bankruptcy right, subject to Section 546(c) and applicable law, to demand return of qualifying goods sold to an insolvent debtor and received shortly before bankruptcy.
How it works
Section 546(c) preserves specified reclamation rights of sellers that sold goods in the ordinary course while the debtor was insolvent. The current statute generally requires a written demand within 45 days after receipt, with a special postpetition timing rule when the 45-day period expires after bankruptcy.
Section 546(c) preserves a seller remedy
The statute recognizes qualifying reclamation rights under applicable law for goods sold in the ordinary course to an insolvent debtor.
Written demand timing is critical
The current statute generally uses a 45-day period after receipt, with an alternative deadline tied to the petition when that period expires after filing.
Senior secured rights can limit economic value
A reclamation right can be subordinate to prior rights of a holder with a security interest in the goods or proceeds.
The remedy focuses on identifiable goods
Reclamation becomes harder when goods have been sold, consumed, transformed or otherwise cannot be identified within the legal framework.
Worked example: valid demand, weak economics
A vendor timely reclaims $500,000 of inventory, but all qualifying goods are fully encumbered by a senior lender whose debt exceeds collateral value. The technical right can have limited recovery value.
Reclamation and 503(b)(9) should be analyzed together
Section 546(c) preserves the seller’s ability to assert rights under Section 503(b)(9). The provisions protect trade creditors differently.
Common mistakes
Using the old ten-day rule for ordinary reclamation; assuming a written demand defeats senior liens; and treating reclamation and Section 503(b)(9) as identical remedies.
What it changes in recovery analysis
Reclamation rights can have strong legal language but weak economic value when inventory is already subject to a senior blanket lien. The practical recovery model should ask whether the goods are identifiable, still held, encumbered, consumed or resold. The same vendor may have a more valuable 503(b)(9) claim than reclamation remedy, so both should be valued independently before assigning a recovery estimate.
Example
A supplier delivers $1 million of inventory to an insolvent debtor 10 days before Chapter 11 and timely sends a written reclamation demand. A preexisting secured lender’s superior lien can still materially affect the practical value of that remedy.
Example
A supplier delivers $1 million of inventory to an insolvent debtor 10 days before Chapter 11 and timely sends a written reclamation demand. A preexisting secured lender’s superior lien can still materially affect the practical value of that remedy.
Professional note
Reclamation is not the same as a 503(b)(9) administrative claim. Analyze both rights, their different timing rules and the effect of senior liens.
Related terms
- Administrative Expense Claim
An Administrative Expense Claim is a bankruptcy claim for an expense allowed under Bankruptcy Code Section 503, commonly arising from specified postpetition costs of preserving or administering the estate.
- Secured Claim
A Secured Claim is a bankruptcy claim secured by a lien or other qualifying interest in property, with the secured portion generally determined under Bankruptcy Code Section 506 by the value of the creditor's interest in the estate's interest in that property.
- Section 503(b)(9) Claim
A Section 503(b)(9) Claim is an administrative expense for the value of goods received by the debtor within 20 days before bankruptcy when the goods were sold to the debtor in the ordinary course of its business.
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