Avoidance Actions and Preference Avoidance

Creditors' Attorneys in Delaware Business Bankruptcy

Provisions of the Bankruptcy Code provide that all unsecured creditors are to receive fair and equal treatment. The company entering bankruptcy, creditors of the business and the bankruptcy trustee all have the option to review past payments made by the bankrupt company and may sue to bring those assets back into the bankruptcy estate.

The bankruptcy attorneys at Casarino Christman Shalk Ransom & Doss, P.A. represent creditors and others who face lawsuits over such payments, typically referred to as Avoidance and Preference actions, in U.S. Bankruptcy Court for the District of Delaware.

To discuss a case or schedule a consultation, please contact Donald M. Ransom directly at (302) 594-4500, ext. 107, or after 5 p.m. prevailing Eastern Time at (302) 547-5859.

Preference Avoidance

Any payment made by a debtor to a creditor within 90 days of filing bankruptcy may be called into question as a preferential or fraudulent transfer of assets. It may be examined by the trustee or by a creditors' committee. (If the debtor-creditor relationship is close, such as a business partner, business affiliate, or subsidiary, the timeframe in which payments can be examined may be as much as one year).

In order to make additional assets available for distribution, the debtor, the creditors' committee or the bankruptcy trustee may bring a preference avoidance action to establish that payments were preferential and may demand that a payment or payments be returned to be redistributed equitably among all creditors.

Preference Defenses

When facing a demand for the return of funds paid by a debtor who later declares bankruptcy, it is important to know that there are several defenses available. While each case must be examined individually, common defenses include:

• That goods or services were delivered and money received at essentially the same time (contemporaneous exchange for new value defense)
• That goods were provided (new value advanced) after an alleged preferential payment
• That the exchange was made in the ordinary course of business
• That the exchange was made according to ordinary business terms, the way similar businesses in the industry operate

Recent changes to the U.S. Bankruptcy Code pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 have created additional defenses as well.

If you would like to discuss a bankruptcy matter or schedule a consultation, please contact us at (302) 594-4500.

Representative Bankruptcy Preference and Avoidance Actions

Recent representative matters include:

• In re AMEC Holding Corp. (AMEC Liquidating Trust) (Chapter 7 Preference Action)
• In re American Pad & Paper, Inc.. (Preference and Avoidance Action)
• In re Astropower, Inc. (Chapter 11 Preference Action Against Inverter Manufacturer)
• In re BRAC, Inc. (Chapter 11 Preference Action)
• In re Maxide Acquisition, Inc. (DMX Creditors Liquidation Trust) (Alleged Preference and Avoidance Adversary Proceedings Against Multiple Creditors)
• In re Factory 2-U Stores, Inc. (Defense of Multiple Defendants in Chapter 7 Adversary Proceedings)
• In re Gentek, Inc. (Defense of Chapter 11 Preference Action)
• In re S-Tran Holdings, Inc. (Service Transport, Inc.) (Defense of Alleged Preference and Avoidance Adversary Proceeding under Intermodal Trust Doctrine)
• In re The Loewen Group (Defense of Adversary Proceeding against Alleged Insider)
• In re Ultimate Electronics, Inc. (Liquidating UE, Inc.) (Defense of HVAC Manufacturer and Distributor against Alleged Preference and Avoidance Adversary Proceeding)

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