Articles tagged with: bankruptcy preference

articles discussing bankruptcy preference analysis, negotiation, defense, adversary proceedings

Cadence Innovation, GM Settle Round 3 – Split Baby

In another blow to maintaining administrative solvency (much less any hope of recovery by the unsecured creditors on prepetition claims),  on March 23, 2009, Cadence Innovation settled its $4,914,075 claim against GM for $2,830,000 ($2,000,000 cash and $830,000 GM loan reduction).  For Cadence Innovation this result certainly represents a disappointment.  The $4,914,075 certainly would have been viewed as “in the bank.”

Circuit City Liquidation – Preliminary Bankruptcy Preference Assessment

On November 10, 2008, Circuit City Stores, Inc. (“Circuit City”) filed for reorganization relief under Chapter 11 of the United States Bankruptcy Code.  Slightly more than two months later Circuit City announced abandonment of its plan to reorganize.  Instead, Circuit City will liquidate all of its assets.

What does this liquidation of Circuit City mean in terms of the potential for bankruptcy preference claims?

We have looked at the financial and other public information available.  Our preliminary assessment is that the Circuit City liquidation has the potential create a massive number of bankruptcy preference claims.

Bankruptcy Preference Subsequent New Value Defense

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.

Ordinary Course of Business Bankruptcy Preference Defense

The ordinary course of business defense requires that either (1) the payment have been made in the ordinary course of business of both the supplier and the customer; OR (2) the payment was made under “ordinary business terms.” Please note this is an either/or test. Prior to 2006 the test was an “AND” test and both elements had to be proven. This was very difficult to do.

Documentation Makes Contemporaneous Exchange Preference Defense a Winner

The contemporaneous exchange defense is one of the most often disputed defenses. It should not be that way. The focus of the defense is very narrow. The focus is on the time when the potential preference payment was received. The payment must be made at or about the same time as the delivery of goods or services for which payment is made. So the “information zone” is very short.

The reason the contemporaneous exchange defense is often litigated is because the supplier has failed to get the proper documentation in place to establish the defense.

Cadence Innovation LLC – Decision to Liquidate Means Preference Claims are Coming

Original Post 12/28/2008; See Updates At End of this Post

For a supplier confronted with a customer bankruptcy, nothing changes bad to worse like the failure of the customer to successfully reorganize.  This means that a filing under Chapter 11, which creates the possibility that the customer will continue operations, now becomes a liquidation under Chapter 7.  Worse still, the supplier who has received payments on open account during the bankruptcy preference period will likely face a bankruptcy preference claim and faces the real prospect of receiving a demand for repayment of those amounts.

Allied Bankruptcy Preference Claim Status

Yes it is currently a mystery.  Where are the Allied Bankruptcy Preference Claims?

Despite all our efforts — calls, emails, docket searches – we can not figure it out.  The 2 year statute of limitations appears to have run.

We will continue to probe and let you know.