In a case of apparent first impression, U.S. Bankruptcy Judge Christopher S. Sontchi considers whether post-petition “critical vendor” payments of pre-petition claims reduced “new value”. Judge Sontchi holds that such post petition payments do not reduce the amounts available for the subsequent new value defense under 11 U.S.C. § 547(c)(4). [The decision is currently on appeal to the United States Third Circuit Court of Appeals in In re Friedman’s Inc. Appeal Docket No. 13-1712. Briefing before the Court of Appeals is complete and oral argument is scheduled for October 17, 2013.]
On December 29, 2010, with only 2 weeks left before expiration of the statute of limitations for bringing preference actions, the Creditors Committee in the Checker Motors Corporation bankruptcy (Bankruptcy Court for the Western District of Michigan Case No.: 09-00358) moved for authority to file preferential transfer recovery actions (the “Standing Motion”) in anticipation of the approval of the proposed Plan of Liquidation. The Plan of Liquidation contemplates that all remaining assets of the Debtor, including avoidance actions under Chapter 5 of the Bankruptcy Code, will be assigned to a Liquidating Trust. With no filed opposition to the creditors committee’s motion, there is no reason to expect that the requested authority will not be granted.
From November 1, 2010 through November 10, 2010, the Chapter 11 Trustee in the DBSI Inc. bankruptcy has launched 853 avoidance actions against investors and trade creditors. The avoidance actions are unique for several reasons.
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.
Ascendia Brands, Inc. (Delaware Bankruptcy Lead Case No. 08-11787) is poised to launch a barrage of bankruptcy avoidable, preferential transfer adversary proceedings within the next 2 weeks. Our analysis of the Debtor’s schedules indicates that approximately 140 former suppliers and other trade creditors will be targeted for avoidable transfer recovery under section 547, and there is a maximum theoretical recovery of approximately $21 million.
On July 2, 2010, the United States Court of Appeals for the Sixth Circuit ruled that, under Kentucky law, the “immunizing” effect of a purchase money security interest under Section 547(c)(3)[FN 1] was held in abeyance as a preference claim defense until the enabling loan security interest was “actually noted on the certificate of title.” Brock v. Branch Banking and Trust Company (In re Johnson), — F.3d —-, 2010 WL 2629704 (6th Cir. 2010). The holding had the practical effect of exposing the secured lender in that proceeding to the trustee’s claims for lien avoidance and recovery as a preferential transfer.
During the first half of 2010, the United States Court of Appeals for the Ninth Circuit and the United States Court of Appeals for the Tenth Circuit issued decisions addressing the remedies available to a trustee following the avoidance as a Section 547FN1 preferential transfer of a non-possessory security interest. The decisions substantially overlap in their respective holdings, but the area of disagreement is practically significant, and the difference bodes ill for non-possessory secured creditors in the Ninth Circuit.
On June 18, 2010 the U.S. Bankruptcy Court in Delaware authorized the Official Committee of Unsecured Creditors to commence preference actions against creditors of Crucible Materials Corporation (District of Delaware Case No. 09-11582 (MFW)). The system that allows the Committee to sue its own constituents derives from one of the basic tenets of U.S. bankruptcy law… equal treatment among creditors of the same class. For those who will be targeted by these preference claims, the hope is that at least some of the returned money will find its way back in the form of increased distributions to the unsecured creditors. Unfortunately, in all probability, the Committee is suing its own constituents to recover funds under circumstances where none of the recovery will ever be paid to unsecured creditors.
On March 5, 2009 (the “Petition Date”), the Monaco Coach Corporation and 12 related entities[FN1] commenced these cases by filing voluntary petitions for relief under chapter 11 the Bankruptcy Code. As of June 4, 2009, the Debtors closed the sales of their luxury motorhome resort and core manufacturing assets. That same day, the Debtors’ authorization to use cash collateral expired. Without a source of cash to fund post-petition administrative expense, the Debtors quickly moved to convert the cases to Chapter 7. The cases were converted on June 30, 2009.
The Bankruptcy Court for the District of Delaware, Judge Kevin Gross, has confirmed the applicability to preference actions of the venue dollar threshold of 28 USC Section 1409(b). Dynamerica Mfg. LLC v. Johnson Oil Co., LLC, 2010 WL 1930269 (Bkrtcy.D.Del., May 10, 2010).