Preferential payment?
Posted: Thu Apr 28, 2011 4:51 pm
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
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Email: gwallace@gladstonemichel.com
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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
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