Preferences are payments that favor certain creditors over others. A debtor in bankruptcy has special powers to recover preferential transfers the debtor made within 90 days of bankruptcy, which recoveries become part of the debtor’s bankruptcy estate for distribution under the Bankruptcy Code’s priority scheme. A number of defenses are available to the recipient of a transfer alleged to be preferential. Two recent bankruptcy opinions from Delaware addressed preference defense issues.
The first relates to the “ordinary course of business” defense. In FI Liquidating Trust v. The Terminix International Company Limited Partnership, Adv. Proc. No. 23-1233 (October 29, 2024), the Delaware District Court held that the Bankruptcy Court erred by relying solely on the standard deviation method without considering other relevant ordinary course of business factors under Section 547(c)(2) of the Bankruptcy Code. The District Court held that this statistical approach, without expert support or consideration of the non-normal data distribution, was insufficient to establish an “ordinary course of business.”
The second is Official Committee of Unsecured Creditors v. Nimble Gravity, LLC, Adv. Proc. No. 24-50048 (October 30, 2024), where the Delaware Bankruptcy Court denied a motion to dismiss for failure to state a claim, holding that the complaint met the necessary pleading requirements. The Court found that the Committee had sufficiently alleged the “nature and amount” of each antecedent debt and provided enough detail to put the defendant on notice. The Committee also fulfilled the requirement of conducting “reasonable due diligence” into the defendant’s potential defenses by reviewing records and requesting information from the defendant. Further, the Court ruled that the Committee’s alternative claim of constructive fraud was adequately pled, as it did not need to meet the heightened pleading standard required for actual fraud.
Attorneys at Wolfson Bolton Kochis PLLC are well versed in defending preferential transfer litigation. Please contact Anthony J. Kochis ([email protected]) for more information on minimizing your exposure to a debtor.