BANKRUPTCY PREFERENCE BASIC CONCEPTS, DEFENSES
Most businesses know first-hand the disappointment and frustration that come when a once-good customer goes into bankruptcy. Yet a customer’s bankruptcy can bring even more bad news in the form of a “bankruptcy preference claim.” A supplier or vendor found to be on the losing end of a preference claim is, in effect, required to “pay back” money — money that was received from the now-bankrupt customer during the 90 day period BEFORE the bankruptcy case was commenced.
The thought of repaying up to 90 days of receipts can be devastating, particularly when it follows (1) the loss of the customer’s business; and (2) the negative impact on cash flow caused by the customer’s unpaid receivables. Understanding the terminology, the process and the potential, major defenses is the first step in coming to grips with a potential or actual preference claim.
For a client facing a bankruptcy preference claim for the first time, we have developed these educational material, which include a video series on the basics of bankruptcy preference defense. This video series, “BANKRUPTCY PREFERENCES – THE BASICS”, is posted on this website and is presented in parts in order to make the subject matter a little more manageable. The parts of this presentation are:
Introduction – Why Should You Learn About Bankruptcy Preferences
Part 1 – Identifying the bankruptcy preference payment
Part 2 – The Contemporaneous Exchange Defense
Part 3 – The Ordinary Course of Business Defense
Part 4 – The Subsequent New Value Defense
Part 5 – Multiple Payments, Multiple Defenses
Part 6 – The books and records you may need in defending a bankruptcy preference claim
There are additional articles that deal with various bankruptcy preference issues more in depth.
There is a section of articles called “Lesser Known Defenses.” While the three defenses we address in the videos by far are the most often applicable, there are numerous other defenses that may be available is the right circumstances.
There is also a section of articles dealing with all phases of the bankruptcy preference claim and resolution process.
In the “Resources” section, you will find annotated text of the sections of the Bankruptcy Code that have the most to do with bankruptcy preferences. Cross reference links are provided in the articles citing these code sections.
Finally, you will see on the right hand column of each page a listing of bankruptcies that provide actual, in practice illustrations of the issues confronting suppliers and other unsecured creditors in bankruptcy.
