On September 6th and 7th, 2016, Nathan A. Schultz, as Distribution Trustee of the TER Trust (the “Trustee”) for the bankruptcy estate of Trump Entertainment Resorts, Inc. (the “Debtors”), filed 92 complaints in preference action cases. The Trustee filed these actions in the Delaware Bankruptcy Court and argued that the defendants hold assets belonging to the Debtor and that the payments received by various defendants are avoidable and subject to recovery under 11 U.S.C. §§ 547, 548, 549 and 550 of the United States Bankruptcy Code. The Trustee is represented by the law firms ASK LLC and Gibbons, P.C.
The Debtors owned and operated two casino hotels located in Atlantic City, New Jersey: the Trump Taj Mahal Casino Resort (the “Taj Mahal”) and the Trump Plaza Hotel (the “Plaza”). On October 2, 2015, the Court entered an order confirming the Debtors’ Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code as Modified (the “Confirmation Order” and “Plan,” respectively). [D.I. 1123]. The effective date of the Plan (the “Effective Date”) occurred on February 26, 2016. [D.I. 1902]. In accordance with the Plan and Confirmation Order, the TER Trust (the “Trust”) was established effective on the Effective Date of the Plan, and the Debtors and the Trustee entered into that certain Distribution Trust Agreement.
Pursuant to the Distribution Trust Agreement, the Trustee was tasked with prosecuting avoidance actions, including preference and fraudulent transfer actions. The Debtor’s bankruptcy, as well as the preference actions, 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 I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”