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Preferential payment?
The lead case is DePrizio, then there was a case called Mercon. These cases
were effectively rendered obsolete by Code amendments. I actually wrote an
article about this some 15 years ago.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
Gary Wallace
Sent: Thursday, April 28, 2011 4:17 PM
To: cdcbaa@yahoogroups.com
Subject: Re: [cdcbaa] Preferential payment?
This sounds like it might be the classic "trilateral preference" case. If
so, there are a couple of things to keep in mind, which cut both ways:
1. The language of 547 says "to or for the benefit of" the creditor.
Clearly the insider benefited by the payment, as you said, in that he no
longer has liability on the guaranty. However, is the benefit
"quantifiable" as is required in the Ninth Circuit? (Not sure; probably yes)
2. Was the payment on account of an antecedent debt that was owed to
the insider? There is case law that says yes because "claim" under the code
includes "contingent" claim (such as an indemnity/reimbursement claim that
the insider might have otherwise had), and "debt" simply means liability on
a claim.
3. If 547 applies as to the insider, was the payment made in the
ordinary course such as to afford a defense to the insider? For example,
had the debt become due and payable, or was it an earlier-than-required
payment while at the same time the debtor was stiffing other creditors?
(Factual inquiry).
4. Was the debtor insolvent at the time of the transfer?
5. Did the insider benefit more than he would have in the involuntary
case?
6. Even if section 547 does not apply, the insider should be alert to a
possible section 548 action as well as possible corporate cause(s) of action
against the insider if the facts show that the he violated his fiduciary
duties to the company in causing the payment to be made.
I suggest you also read Walters v. Wells Fargo (In re Walters), 163 B.R. 575
(C.D. CA, 1994) and In re Levit v. Ingersoll Rand (In re Deprizio), 874 F.2d
1186 (7th Cir. 1989). The latter case has been criticized by many
subsequent decisions, but it is still often cited and has not been
overturned (I don't think).
Gary
Gary R. Wallace
Gladstone Michel Weisberg Willner & Sloane, ALC
4551 Glencoe Ave., Suite 300
Marina del Rey, CA 90292
Tel. (310) 821-9000
Fax (310) 775-8775
Email: gwallace@gladstonemichel.com
Web: www.gladstonemichel.com
NOTE: The information contained in this email may contain attorney-client
privileged and confidential information intended only for the use of the
individual or entity named above. If the reader of this message is not the
intended recipient, or the employee or agent responsible to deliver it to
the intended recipient, you are hereby notified that any dissemination,
distribution or copying of this communication is strictly prohibited. If you
have received this communication in error, please notify us immediately by
email and delete the original message.
On Apr 28, 2011, at 2:33 PM, John D. Faucher wrote:
>
> My potential client corporation is in an involuntary bankruptcy.
More than 90 days before the petition was filed, the principal caused a
$25,000 payment to be made to a creditor. This payment covered a debt
guaranteed by the principal, so he's essentially $25,000 better off because
of this payment. Preference?
> I'm thinking not, because of the plain language of 547: the trustee
> can only recover funds paid to the creditor, and the creditor isn't an
insider. Anyone have a different opinion?
>
> John D. Faucher
> Hurlbett & Faucher
> 5743 Corsa Ave., Suite 208
> Westlake Village, CA 91362
> (818) 889-8080
> Fax: (805) 367-4154
> http://www.hurlbettfaucher.com/
>
> 3324 State Street, Suite O
> Santa Barbara, CA 93105
> (805) 963-9111
>
> This electronic mail message and any attached files are confidential,
> contain information intended for the exclusive use of the individual or
entity to whom it is addressed, and may be legally privileged. If you are
not the intended recipient, please immediately reply to John Faucher (at
818/889-8080 or john@hf-bklaw.com) indicating that you received this message
and then delete the message without delay. Thank you for your cooperation.
>
> Disclosure Under U.S. IRS Circular 230: The recipient may not use any
> tax advice contained in this communication, including any attachments,
> for the purpose of avoiding federal tax related penalties or
> promoting, marketing or recommending to another party any particular
> transaction or matter.
>
>
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This sounds like it might be the classic "trilateral preference" case. If so, there are a couple of things to keep in mind, which cut both ways:
1. The language of 547 says "to or for the benefit of" the creditor. Clearly the insider benefited by the payment, as you said, in that he no longer has liability on the guaranty. However, is the benefit "quantifiable" as is required in the Ninth Circuit? (Not sure; probably yes)
2. Was the payment on account of an antecedent debt that was owed to the insider? There is case law that says yes because "claim" under the code includes "contingent" claim (such as an indemnity/reimbursement claim that the insider might have otherwise had), and "debt" simply means liability on a claim.
3. If 547 applies as to the insider, was the payment made in the ordinary course such as to afford a defense to the insider? For example, had the debt become due and payable, or was it an earlier-than-required payment while at the same time the debtor was stiffing other creditors? (Factual inquiry).
4. Was the debtor insolvent at the time of the transfer?
5. Did the insider benefit more than he would have in the involuntary case?
6. Even if section 547 does not apply, the insider should be alert to a possible section 548 action as well as possible corporate cause(s) of action against the insider if the facts show that the he violated his fiduciary duties to the company in causing the payment to be made.
I suggest you also read Walters v. Wells Fargo (In re Walters), 163 B.R. 575 (C.D. CA, 1994) and In re Levit v. Ingersoll Rand (In re Deprizio), 874 F.2d 1186 (7th Cir. 1989). The latter case has been criticized by many subsequent decisions, but it is still often cited and has not been overturned (I don't think).
Gary
Gary R. Wallace
Gladstone Michel Weisberg Willner & Sloane, ALC
4551 Glencoe Ave., Suite 300
Marina del Rey, CA 90292
Tel. (310) 821-9000
Fax (310) 775-8775
Email: gwallace@gladstonemichel.com
Web: www.gladstonemichel.com
NOTE: The information contained in this email may contain attorney-client privileged and confidential information intended only for the use of the individual or entity named above. If the reader of this message is not the intended recipient, or the employee or agent responsible to deliver it to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately by email and delete the original message.
On Apr 28, 2011, at 2:33 PM, John D. Faucher wrote:
>
> My potential client corporation is in an involuntary bankruptcy. More than 90 days before the petition was filed, the principal caused a $25,000 payment to be made to a creditor. This payment covered a debt guaranteed by the principal, so he's essentially $25,000 better off because of this payment. Preference?
> I'm thinking not, because of the plain language of 547: the trustee can only recover funds paid to the creditor, and the creditor isn't an insider. Anyone have a different opinion?
>
> John D. Faucher
> Hurlbett & Faucher
> 5743 Corsa Ave., Suite 208
> Westlake Village, CA 91362
> (818) 889-8080
> Fax: (805) 367-4154
> http://www.hurlbettfaucher.com/
>
> 3324 State Street, Suite O
> Santa Barbara, CA 93105
> (805) 963-9111
>
> This electronic mail message and any attached files are confidential, contain information intended for the exclusive use of the individual or entity to whom it is addressed, and may be legally privileged. If you are not the intended recipient, please immediately reply to John Faucher (at 818/889-8080 or john@hf-bklaw.com) indicating that you received this message and then delete the message without delay. Thank you for your cooperation.
>
> Disclosure Under U.S. IRS Circular 230: The recipient may not use any tax advice contained in this communication, including any attachments, for the purpose of avoiding federal tax related penalties or promoting, marketing or recommending to another party any particular transaction or matter.
>
>
The post was migrated from Yahoo.
charset="windows-1251"
Indirect preference. Check special code sections in 547 on this subject.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
John D. Faucher
Sent: Thursday, April 28, 2011 2:33 PM
To: cdcbaa@yahoogroups.com
Subject: [cdcbaa] Preferential payment?
My potential client corporation is in an involuntary bankruptcy. More than
90 days before the petition was filed, the principal caused a $25,000
payment to be made to a creditor. This payment covered a debt guaranteed by
the principal, so he's essentially $25,000 better off because of this
payment. Preference?
I'm thinking not, because of the plain language of 547: the trustee can only
recover funds paid to the creditor, and the creditor isn't an insider.
Anyone have a different opinion?
John D. Faucher
Hurlbett & Faucher
5743 Corsa Ave., Suite 208
Westlake Village, CA 91362
(818) 889-8080
Fax: (805) 367-4154
http://www.hurlbettfaucher.com/
3324 State Street, Suite O
Santa Barbara, CA 93105
(805) 963-9111
This electronic mail message and any attached files are confidential,
contain information intended for the exclusive use of the individual or
entity to whom it is addressed, and may be legally privileged. If you are
not the intended recipient, please immediately reply to John Faucher (at
818/889-8080 or john@hf-bklaw.com )
indicating that you received this message and then delete the message
without delay. Thank you for your cooperation.
Disclosure Under U.S. IRS Circular 230: The recipient may not use any tax
advice contained in this communication, including any attachments, for the
purpose of avoiding federal tax related penalties or promoting, marketing or
recommending to another party any particular transaction or matter.
charset="windows-1251"
Message
Indirect preference.
Check special code sections in 547 on this subject.
David A.
Tilem
Certified Bankruptcy
Specialist*
The post was migrated from Yahoo.
charset="US-ASCII"
My potential client corporation is in an involuntary bankruptcy. More than
90 days before the petition was filed, the principal caused a $25,000
payment to be made to a creditor. This payment covered a debt guaranteed by
the principal, so he's essentially $25,000 better off because of this
payment. Preference?
I'm thinking not, because of the plain language of 547: the trustee can only
recover funds paid to the creditor, and the creditor isn't an insider.
Anyone have a different opinion?
John D. Faucher
Hurlbett & Faucher
5743 Corsa Ave., Suite 208
Westlake Village, CA 91362
(818) 889-8080
Fax: (805) 367-4154
http://www.hurlbettfaucher.com/
3324 State Street, Suite O
Santa Barbara, CA 93105
(805) 963-9111
This electronic mail message and any attached files are confidential,
contain information intended for the exclusive use of the individual or
entity to whom it is addressed, and may be legally privileged. If you are
not the intended recipient, please immediately reply to John Faucher (at
818/889-8080 or john@hf-bklaw.com )
indicating that you received this message and then delete the message
without delay. Thank you for your cooperation.
Disclosure Under U.S. IRS Circular 230: The recipient may not use any tax
advice contained in this communication, including any attachments, for the
purpose of avoiding federal tax related penalties or promoting, marketing or
recommending to another party any particular transaction or matter.
charset="US-ASCII"
My potential client corporation is in an involuntary bankruptcy. More than 90 days before the petition was filed, the principal caused a $25,000 payment to be made to a creditor. This payment covered a debt guaranteed by the principal, so he's essentially $25,000 better off because of this payment. Preference? I'm thinking not, because of the plain language of 547: the trustee can only recover funds paid to the creditor, and the creditor isn't an insider. Anyone have a different opinion? John D. FaucherHurlbett & Faucher5743 Corsa Ave., Suite 208Westlake Village, CA 91362(818) 889-8080Fax: (805) 367-4154http://www.hurlbettfaucher.com/3324 State Street, Suite OSanta Barbara, CA 93105(805) 963-9111This electronic mail message and any attached files are confidential, contain information intended for the exclusive use of the individual or entity to whom it is addressed, and may be legally privileged. If you are not the intended recipient, please immediately reply to John Faucher (at 818/889-8080 or john@hf-bklaw.com) indicating that you received this message and then delete the message without delay. Thank you for your cooperation. Disclosure Under U.S. IRS Circular 230: The recipient may not use any tax advice contained in this communication, including any attachments, for the purpose of avoiding federal tax related penalties or promoting, marketing or recommending to another party any particular transaction or matter.
The post was migrated from Yahoo.