DE Bankruptcy Court: Pre-BACPA Burden of Proof on Ordinary Course of Business Defense No Longer Applies

November 11, 2014

Publication| Bankruptcy & Corporate Restructuring

Under an opinion dated October 14, 2014, the Delaware Bankruptcy Court denied opposing motion for summary judgment in a proceeding initiated by the plaintiff-trustee to avoid and recover alleged preferential transfers.

The defendant (a pre-petition creditor of the debtor) moved for summary judgment on the ordinary course of business defense, arguing that the payments to it were made in the ordinary course of business under 11 U.S.C. § 547(c)(2). The trustee similarly moved for summary judgment, arguing that the defendant could not establish the ordinary course of business defense because the debtor’s payments to it were late and the defendant only engaged in business with the debtor during the preference period. The court denied both motions in part because the record before it was insufficient and there appeared to be material factual issues in dispute regarding the parties’ payment practices. However, the court also addressed the somewhat novel issue of whether a defendant with limited payment history must—in accordance with certain long-standing, pre-BACPA case law—establish an industry norm to demonstrate that the parties’ payment practices were ordinary.

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