Earlier this month, Barry E. Mukamal, in his capacity as Litigation Trustee (the “Trustee”) of the SAI Litigation Trust, began filing complaints to recover what the Trustee contends are avoidable preferences. The Trustee filed the preference actions in the Delaware Bankruptcy Court and argues that the transfers, or payments, received by various defendants are avoidable and subject to recovery under 11 U.S.C. § 547 and 548 of the United States Bankruptcy Code. This post will look at the Southern Air Holdings bankruptcy proceeding, why the company filed for bankruptcy as well as key developments during the course of the bankruptcy proceeding. In October, 2012, Jason Cornell published a summary of the Southern Air bankruptcy filings in this post.
On September 28, 2012, Southern Air Holdings (“Southern Air” or “Debtor”), along with various related entities, filed chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware. As stated in its Declarations in Support of Chapter 11 Petitions and First Day Relief (the “Declaration” or “Decl.”), Southern Air describes itself as a “long-haul, wide-body air cargo” provider for governments and commercial users. Going in to bankruptcy, the company employs 611 full-time employees. Southern Air is part of the United States government’s “Civil Reserve Air Fleet.” Pursuant to agreements with the U.S. Department of Defense, Southern receives air cargo contracts from the government and in turn agrees to pledge its aircraft in times of national emergency. Southern Air also has air cargo contracts with the United Kingdom Ministry of Defense.
The Bankruptcy Proceeding
On January 18, 2013, just four months after filing for bankruptcy, Southern Air filed its Second Amended Chapter 11 Plan (the “Plan”). The Delaware Bankruptcy Court confirmed the Plan on March 18, 2013. On April 15, 2013, Southern Air satisfied the conditions precedent to the Plan becoming effective.
Included in the Southern Air Plan is a Litigation Trust Agreement. The Litigation Trust Agreement vests the Litigation Trust with the authority to evaluate, prosecute and settle various litigation claims, including avoidable preference claims. Acting under the Litigation Trust Agreement, the Trustee commenced the recently filed preference actions.
The Preference Actions
The Southern Air bankruptcy, as well as the preference actions, are before the Honorable Christopher S. Sontchi. The Trustee/Plaintiff prosecuting the NewPage preference actions is represented by the Cole, Schotz, Meisel, Forman & Leonard, P.A. and Brinkman Portillo Ronk, APC.
Defenses to a Preference Action
The Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”
John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP. John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at firstname.lastname@example.org.