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Preference Demands Call for Money Paid Prior to Bankruptcy
As featured in the TMA Insert in Crain's Chicago Business, September 8, 2008
Written by Steven Gelsosomo, VP Bankruptcy Services
Many corporate professionals have never had the misfortune of experiencing a preference demand. Most companies have become accustomed to filing claims for invoices that remain unpaid due to a bankruptcy filing. The shock comes when the company receives a preference demand letter stating that pursuant to §547 of the U.S. Bankruptcy Code, the debtor estate legally has the right to demand the return of money paid by the debtor within the 90 days before the debtor filed for bankruptcy.
There are several defenses available to such a demand, including the new value/contemporaneous exchange and ordinary course defenses. These are typically the initial defense responses to the preference demand, as these defenses are usually easily attainable. There are other defenses available, such as contractual obligations, a security interest with the debtor or the absence of antecedent debt.
Over our many years of both pursuit of preferences on behalf of debtor estates and the defense of preference actions, we have encountered numerous views with regard to the application of the preference laws. As the issues surrounding the defense of a preference can be complicated, the involvement of a bankruptcy professional can become a necessity.
To see the quarter page ad also included in the insert, click here.
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