Assess 3 Potential Preference Action Defenses

August 22, 2022

Publication| Bankruptcy & Corporate Restructuring

Your company has just been served with a preference complaint. The complaint seeks to recover tens or hundreds of thousands of dollars, even though your company has already taken a loss on the debtor’s accounts. Your initial response is anger at the unfairness of being sued.

Fortunately, under Bankruptcy Code § 547(b), Congress included defenses against preference actions so debtors’ ordinary transactions would remain undisturbed. Vendors could be encouraged to continue providing goods and services to companies on the verge of bankruptcy.

So, as Douglas Adams famously recommended, “Don’t panic.” While they have complexities, principal preference action defense options are not hard to analyze, and you can readily estimate your company’s potential liability to the debtor using a handful of business records.

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