On March 14, 2016, Charles A. Stanziale, Jr., as the Chapter 7 Trustee of Simplexity, LLC, et al. (the “Debtors”) filed approximately 44 preference complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, and to disallow claims of the defendants pursuant to Section 502(d).
By way of background, the Debtors filed petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on March 16, 2014 under Chapter 11 of the Bankruptcy Code. By order dated January 7, 2015, the Debtors’ Chapter 11 cases were converted to cases under Chapter 7 of the Bankruptcy Code, currently administered under Case No. 14-10569.
The law firm of ASK Financial represents the Chapter 7 Trustee in these various preference cases. The pretrial conference is set for May 4, 2016 at 10:00 a.m. These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Kevin Gross.
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 that we have prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272.