With scarcely 4 months remaining on the statute of limitations for bringing Section 547 bankruptcy preference actions (it expires on February 5, 2011), the bankruptcy case of Brunos Supermarkets, LLC has moved on to the bankruptcy preference watch list.


On February 5, 2009, the Brunos Supermarkets, LLC (the “Debtor”) filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.  The filing was made in the Northern District of Alabama (Birmingham) and Judge Benjamin G Cohen was assigned to the case.

Pursuant to various Orders entered by the Bankruptcy Court, the Debtor has sold substantially all of its assets.  The sales expressly excluded from the sold assets “avoidance actions under Bankruptcy Code sections 544, 546, 547-550, and 553… .” (referred to as “Avoidance Actions”)  Now, the primary remaining assets are those potential Avoidance Action recoveries.

Liquidating Plan Adoption and its Treatment of Bankruptcy Preference Claims

On September 25, 2009, the Debtor’s Fourth Amended Plan of Liquidation (the “Plan”) was confirmed and William S. Kaye was selected to be the Liquidating Trustee (the “Trustee”) of the Debtor’s bankruptcy estate.  The Disclosure Statement for the Plan explains that:

the Liquidating Trustee is retaining for enforcement for the benefit of the Estate all Avoidance Actions, including, but not limited to, against the following persons or entities: (a) any person or entity who received a payment or property from the Debtor to or for their benefit on account of an antecedent debt owed by the Debtor within ninety (90) days of the Filing Date, including, but not limited to, those persons or entities identified in response to Question 3(a) on Debtor’s Statement of Financial Affairs Filed with the Bankruptcy Court, … .

How Massive will the Preference Recoveries Actions Be?

Based on the number and amount of payments made during the preference period as listed on the Debtor’s Schedule of Financial Affairs, there are hundreds of trade creditors and other unsecured creditors who are exposed to potential preference claims.  No “silver bullet” defenses are obvious.  The only assumed and assigned contracts pursuant to the various sales were leases for the locations being sold, and for those, the Kiwi defense should afford insulation from preference claims.

Neither the Disclosure Statement nor the Plan indicate the possible amount of preference recoveries.  In describing the remaining unencumbered assets in the Disclosure Statement, the Debtor explains:  “This exhibit does not include potential causes of action, including avoidance actions… .”

Whether the case lives up to its potential to generate preference claims will largely depend on if and to what extent the Trustee will pre-filter claims against a basic subsequent new value and ordinary course of business analysis.  Creditors will not have long to wait to find the answer.  A Docsheet report has been added for the Brunos Supermarket Bankruptcy for those creditors who would like to monitor for adversary proceeding filings.