On January 6, 2015, Charles A. Stanziale, Jr., the Chapter 7 Trustee (the “Trustee”) for the bankruptcy estate of Golden Guernsey Dairy, LLC (the “Debtor”), began filing complaints to recover what he contends are avoidable preferences. The Trustee filed the preference actions in the Delaware Bankruptcy Court and argued 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 briefly cover the Debtor’s bankruptcy proceedings.
On January 8, 2013, the Debtor filed its chapter 7 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware. The Trustee was appointed on January 11, 2013. As stated in the Motion For Sale of Property under Section 363(b) (the “Sale Motion”), filed on March 1, 2013, the Debtor operated a 170,000 square foot dairy manufacturing, bottling, and distribution plant located in Waukesha, Wisconsin. The Debtor was unable to make required payments to is lenders, so although it was generating revenue, it was not sufficient to service its debt load. The Chapter 7 Trustee’s goal in this bankruptcy proceeding was to find a “turn-key purchaser of the Wisconsin Plant.” Sale Motion at *4. The Trustee was successful in his goal. On May 14, 2013, an auction was held at which Lifeway Foods Inc. submitted a winning bid of $7,365,000 for substantially all the Debtor’s assets.
The Trustee is also responsible for prosecuting litigation intended to increase the assets available to distribute to the company’s creditors. This includes filing and prosecuting preference actions. On December 15, 2014, the Court entered the Order Authorizing the Establishment of Procedures to Compromise and Settle Certain Asserted Preference Claims, which provides authority for the Trustee to settle preference actions. It is vital that defendants read the Order as it creates target settlement values for any given preference claim.
The Golden Guernsey Dairy bankruptcy, as well as the preference actions, are before the Honorable Kevin Gross. The Trustee/Plaintiff prosecuting the preference actions is represented by McCarter & English, LLP.
Defenses to a Preference Action
Preference actions are a form of litigation specifically provided for by the Bankruptcy Code which are intended to recover payments made by the Debtor within the 90 days prior to declaring bankruptcy. The presumption is that the Debtor knew it was going to file bankruptcy, so any payments it made during this 90-day window went to friends and people it wanted to keep happy, and stiffed those the Debtor’s management didn’t like. Recognizing that these payments aren’t always made for inappropriate reasons, 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.”