Buried inside the Consolidated Appropriations Act, 2021, which the President signed into law on December 27, 2020, is a critical provision that will help keep US trade flowing during the COVID-19 pandemic. Specifically, the bankruptcy relief section temporarily amends the US Bankruptcy Code to provide relief to customs brokers, a group that has been adversely impacted by the economic downturn due to disruptions in international trade and the resulting wave of bankruptcies that has put many of their importer-clients out of business.

Customs brokers perform a vital function in the process of importing goods into the United States that benefits importers and the US government. By industry practice, customs brokers often advance payment of estimated duties, taxes, and fees on behalf of their importing clients or otherwise guarantee payment to the US Government through their automated clearing house accounts. This practice – which is essentially a public service – facilitates the smooth execution of the steps necessary to import goods into the United States, and the prompt payment of large amounts of duties, taxes, and fees to the federal government every month. To an extent, it also confers liquidity to importers.

Prior to passage of the stimulus bill, the US Bankruptcy Code allowed the trustee or debtor to forcibly recover payments made to or through a customs broker to US. Customs and Border Protection (CBP) by a bankrupt importer in the 90-day “claw back” period prior to the filing of the bankruptcy petition. This would put individual customs brokers on the line for potentially millions of dollars that – due to their role in the importation process – simply pass through them on their way to the US Treasury.

Because of the ongoing liquidity crisis, the greater risk of importers declaring bankruptcy during the pandemic, and higher import duties assessed on a large and growing number of products under US trade laws such as Section 301, however, many customs brokers have been unwilling to advance or guarantee payments to CBP on behalf of their importing clients. If left unaddressed, this issue could have disrupted a sector critical for the well-functioning of US supply chains.

The stimulus bill amends section 507 of title 11 to provide temporary relief from the claw back provisions of the Bankruptcy Code when importers file for bankruptcy. In particular, for a period of one year after enactment, the Code permits customs brokers to be subrogated to the priority rights of CBP for duties that the customs broker paid on behalf of an importing client that later files for bankruptcy. In other words, trustees and debtors will not be able to seek re-payment of any duties, taxes, and fees that the customs broker was collecting from its clients to forward to the US government. As a result, the bill provides temporary assurances that will enable customs brokers to continue advancing duties, taxes, and fees to the Treasury to keep trade moving, and minimize costly disruptions to the importation of goods that American businesses and consumers need in the midst of the pandemic.

The Steptoe team is proud to have contributed to this effort. Given the critical role that customs brokers play in the US economy and keeping international trade flowing and the continued risks borne by customs brokers for the pivotal role they play, we look forward to working with the incoming Administration, Congress, the trades, and the importing community to extend this important bankruptcy relief beyond 2021.