District of Delaware Bankruptcy Judge Peter J. Walsh denies the motions of defendants (the “Defendants”) in 8 adversary proceedings that sought dismissal of avoidance and recovery claims based on Stern v. Marshall, — U.S. –-, 131 S.Ct. 2594 (2011). In his opinion, Zazzali v. New West Paving et al, Adv. Proc. No. 10-54995 Dkt No. 47 (Bankr.D. April 12, 2012), Judge Walsh concludes that, after Stern, he still “can enter a final judgment on the core preference, post petition transfer, fraudulent transfer, and unjust enrichment claims and issue proposed findings of fact and conclusions of law on the non-core causes of action.” Judge Walsh also addresses in dicta the “even if” scenario and erases any notion that, based on Stern, a dismissal is obtainable in a Chapter 5 avoidance proceeding in Delaware Bankruptcy Court.
On a single day, April 2, 2012, 202 motions (including 108 second motions) to withdraw the reference were filed in the Madoff SIPA adversary “claw back” proceedings. This spike brought to 983 the number of motions were filed by defendants seeking to have their cases heard by the U.S. District Court, rather than the U.S. Bankruptcy Court, for the Southern District of New York. Out of the 1140 Madoff adversary proceedings, defendants in 760 have sought transfer to the District Court.
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.
For businesses confronting of a bankruptcy avoidable transfer claim under Section 547 of the Bankruptcy Code, answering three questions provides a bridge between esoteric descriptions of bankruptcy preference law and real world bankruptcy preference defense. A new article on this website entitled “A Three Question, Preliminary Self Assessment of a Bankruptcy Preference Claim” (click link to read) strives to give a bankruptcy preference defendant an look at the preference claim after it is filtered through three questions that each hit at core bankruptcy preference principles.
The caption of an adversary proceeding complaint provides essential information for the defendant in the process of resolving an adversary proceeding complaint for the recovery of bankruptcy preferences and other avoidable transfers. Part 2 of our five part series on the elements of a bankruptcy preference complaint addresses the caption.
The service of an adversary proceeding complaint often may provide the first notice to a business that it has been identified as a recipient of bankruptcy preferences. Without the warning of a demand letter, the complaint may seem like a missive from hell – laced with demands to avoid and recover preferential transfers and statutory citations to Sections 547(b), 550 and 502(d), the words have as much meaning to the uninitiated as hieroglyphics.
In adding Section 503(b)(9) in the 2005 amendments to the Bankruptcy Code, did Congress intend that the supplier beneficiaries of the new section would wear a sign saying “BANKRUPTCY PREFERENCE TARGET – HIT ME”? This article challenges the growing use of bankruptcy preference actions under Section 547 to defeat and delay the allowance of Section 503(b)(9) administrative expense requests. As discussed below, the ploy subverts Congressional intent in adopting Section 503(b)(9). More fundamentally, the ploy ignores a basic tenet of the Bankruptcy Code that also is embodied in the prima facie requirements for bringing a bankruptcy preference action – “First Determine Priority.”
Feb. 19, 2009 – In an article entitled Section 365 Executory Contract Assumption Defense to a Bankruptcy Preference Claim, we discuss the absolute defense to a preference claim created when a bankrupt company or its trustee “assumes” an “executory contract”. That defense was firmly established in a 2003 decision by the Third Circuit Court of Appeals in the bankruptcy case of In re Kiwi International Air Lines Inc., so the defense is sometimes called the Kiwi defense.
The Kiwi defense is a defense that we believe may be underutilized. As we explain elsewhere on this web site, the facts needed to establish the 3 most common defenses are “fixed” at the time of the bankruptcy filing. As to establishing the subsequent new value, ordinary course of business and contemporaneous exchange defenses, there is nothing that the supplier can do but pull together books and records.
One of the most critical but often overlooked opportunities to defend bankruptcy preference claims regards the ability to apply multiple defenses when there have been multiple payments. This ability to mix and match defenses means that the supplier’s exposure to bankruptcy preference claims can be reduced.
The subsequent new value defense is perhaps the most frequently-used defense. It is, from a books and records perspective, the easiest defense to prove. The focus is on the period after the potentially preferential payment.
We have posted a brief video in which we review the “subsequent new value” defense.
- The “Zone of Information” that applies to this defense
- The basic elements of the defense
- A simple example of the application of the defense
Click this link to see the video Bankruptcy Preferences – Subsequent New Value Defense.