The Customs Business Fairness Act (H.R. 2261)
Customs brokers are seeking a technical change in the bankruptcy laws to provide relief for customs brokers who have paid duties and taxes to Customs and Border Protection (CBP) on behalf of importer-clients who file for bankruptcy.
Customs Brokers and the Payment of Duties
The customs broker plays an important role in the duty payment process at the border and U.S. ports. Under current trade law, there is generally a 10 to 45 business day period between the release of imported merchandise by CBP and submission of the estimated payment of duties and taxes. Licensed customs brokers are often called upon to either advance the payment of these estimated duties/taxes on behalf of the importer or to guarantee payment to the government through its ACH (automated clearing house) account. In effect, customs brokers serve as a pass-through entity, or conduit, for the collecting and payment of duties/taxes. This payment method has become a standard business practice. Collectively, customs brokers are responsible for remitting an estimated $10 billion a year in duty and fee payments due from importers. From the government's perspective, it is far easier to collect the initial duties from a finite number of licensed customs brokers than a hundred thousand individual importers. The government is significantly advantaged by this system, where the prompt payment of billions of dollars in duties is facilitated. This expedites the payment of revenues to the government and allows the flow of trade to continue unimpeded.
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, saying 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. NCBFAA, therefore, proposes a technical amendment to Section 507(d) to permit subrogation rights for customs brokers who have received from the debtor or paid duties and taxes to the government on behalf of a bankrupt importer.
What You Can Do!
We need your help! We are asking that all members contact their Congressperson's office and tell them why this is important to your state and your business. We're including backgound information, a sample letter for you to copy as well as how to talk "Trade" to your Congressperson. This is an important issue and the way we can get it done is through your activism!