preference

In this prior post, a discussion was provided in connection with requiring a company to prepay for its goods or services in order to limit potential preferential exposure.

One question that clients often ask is what measures can be taken to reduce preferential exposure when dealing with a company that is sliding into financial insolvency.  Under Section 547 of the Bankruptcy Code, a debtor or trustee can seek to avoid and recover payments made to a vendor that provided goods or services to the debtor in the 90 days prior to the filing of bankruptcy.

In Howell v. U.S. Foods, Inc., Ch. 7 Case No. 11-13160, Adv. Proc. No. 13-1054, 2014 Bankr. LEXIS 681 (Bankr. N.D. Ga. Feb. 5, 2014) (click here for .pdf of Order), the individual debtor owned and managed a restaurant incorporated as Bilbo’s Bar-B-Que, Inc.  However, the Trustee alleged that the Debtor operated the business as a sole proprietorship known as “Bilbo’s BBQ.”    During the 90 day preference period, payments were made to U.S.

Summary

In a 14 page decision signed September 30, 2013, Judge Walsh of the Delaware Bankruptcy Court provided a primer on one of the limitations of standing provided in the bankruptcy code in his opinion granting a motion to dismiss.  Judge Walsh’s opinion is available here (the “Opinion”).

Background

It hasn't gotten much publicity yet, but certain dollar amounts in the Bankruptcy Code will be increased for new cases filed on or after April 1, 2013. Follow this link for a chart listing all of the changes on this Federal Register page, which printed this month's official notice from the Judicial Conference of the United States.

Among the most meaningful increases for Chapter 11 and other business bankruptcy cases: