On August 16, 2010, the Chapter 7 bankruptcy trustee for Ply-Marts, Inc. (Northern District of Georgia Bankruptcy Case No. 08-72687) sued twenty creditors of the defunct lumber and building materials retailer, which did business as “Ply-Mart” and “PlyMart” (the “Debtor”).  The trustee, Tamara Miles Ogier of the Atlanta firm of Ellenberg, Ogier, Rothschild & Rosenfeld, is seeking to avoid and recover preferential transfers made by the Debtor within the 90-day preference period.

Bankruptcy preference law is dominated by issues of timing.  The timing of these adversary proceedings illustrates two determining timing factors about preference-claim liability, namely, determination of: (1) the 90-day preference period; and (2) the time after which most preference claims are time-barred, that is, prohibited by a statute of limitations built into the U.S. bankruptcy code.  The timing of these twenty bankruptcy preference proceedings also raises a question about whether or not other creditors are about to be sued – there is still plenty of time left.

Determination of 90-day window:

The preference period is determined by counting backward from the date when the bankruptcy petition was filed.  For Ply-Mart, that date was July 1, 2008.  On that date, three creditors filed an involuntary bankruptcy petition against the debtor.  Section 547 marks the starting point for the backward count on “the date of the filing of the petition.”  See Article “The Preferential Payment or Transfer” for a discussion of how to count backward.

Although the Bankruptcy Judge Mary Grace Diehl in Ply-Mart’s case did not grant the creditors’ petition until September 2, 2008, the backward count for Ply-Mart creditors is marked by the date of the petition.  To see a DocSheet Report for the Ply-Marts bankruptcy click this link

Determining When a Preference Action is Time-Barred:

The statute of limitations (after which preference actions cannot be brought) is determined by a formula that counts forward on the calendar from a starting point marked by “entry of the order for relief.”  That date for Ply-Mart creditors occurred on September 2, 2008 when the Bankruptcy Court granted an “order for relief” which allowed the case to go forward.  This means that in the case of Ply-Marts, the 2 year statute of limitations did not start until roughly two months after “the date of the filing of the petition.”

Starting Dates for Most Business Bankruptcies:

Most business bankruptcies are voluntary Chapter 11 petitions filed by the debtor seeking bankruptcy-court protection from its creditors, and the date of filing of a voluntary petition, by statute, “constitutes an order for relief.”  This means that, in the vast majority of bankruptcy cases, the date from which the backward count is made to determine the 90-day preference period and the date from which the forward count is made when determining the statute of limitations formula are the same date.
The Ply-Mart case and virtually all other involuntary bankruptcies represent an “exception” to the often quoted “2 year from filing date” statute of limitations for bringing bankruptcy preference actions.

The Question Left Open: Are Other Shoes About to Drop?

Applied to the facts in Ply-Mart, the statute of limitations formula yields a two-year period.  And that two-year period, starting with “entry of the order for relief” on September 2, 2008, has not yet expired.  The trustee sued only twenty creditors out of several hundred who, from the debtor’s Statement of Financial Affairs, appear to have received payments during Ply-Mart’s 90-day preference window.

On the face of things, it would seem that the twenty adversary proceedings filed on August 16, 2010 are just a start and that more preference actions can be expected in the next two weeks.  However, there are many factors that determine whether or not a bankruptcy trustee will sue an otherwise “eligible” creditor.  Moreover, the twenty defendants already named form an alphabetical list that runs virtually from A to Z.  Creditors whose potential preference exposure has not already been resolved with the trustee and who (from Ply-Mart’s business records) seem to be candidates for preference claims, have roughly two weeks to “wait and see.”