avoidance action


Judge Kevin J. Carey, Chief Judge of the United States Bankruptcy Court for the District of Delaware, recently issued a decision in the Pillowtex bankruptcy addressing the ordinary course of business (“OCB”) defense.  Given the large number of preference actions that are filed it Delaware every year, there is a fair amount of

George Miller, the Chapter 7 Trustee in the HomeBanc Mortgage bankruptcy, recently filed approximately 400 preference actions against various defendants under section 547 of the Bankruptcy Code.  According to a Summons filed in one of the adversary actions,  the first pre-trial conference is scheduled in the United States Bankruptcy Court for the District of Delaware


Earlier this month,  the Official Committee of Unsecured Creditors (the “Committee”) for American Home Mortgage (“AMH”) filed over ninety (90) adversary actions (review one of the Committee’s Complaints here).  As reflected in the Complaint,  the Committee alleges that various creditors of AMH received preferential and/or fraudulent transfers pursuant to 11 U.S.C. sections 547, 548,


Two weeks ago,  preference actions were commenced against a long list of defendants in the New Century Mortgage (“New Century”) and Tweeter Home Entertainment (“Tweeter”) bankruptcies.  The plaintiff in the New Century preference actions is Alan M. Jacobs, the liquidating trustee authorized under New Century’s Second Amended Plan of Liquidation to commence and prosecute


The debtor in the Friedman’s bankruptcy recently filed preference complaints against various defendants.  Days later,  Charles Stanziale, the liquidating trustee in the Custom Foods bankruptcy, filed preference complaints against various parties as well.  The plaintiffs in both actions seek the avoidance and recovery of alleged preference payments under sections 547 of the United States


In January, Mortgage Lenders Network commenced over 65 adversary actions against various defendants, seeking the avoidance and recovery of preferential transfers (read one of the preference complaints here).  As reflected in its complaints,  Mortgage Lenders filed a chapter 11 bankruptcy petition in the Delaware Bankruptcy Court on February 5, 2007. During the ten years prior to its bankruptcy, Mortgage Lenders grew from a small mortgage company with seven employees, to a residential mortgage provider serving 47 states with over 1,700 employees. 

Given the commencement of Mortgage Lenders’ preference program, this post provides a brief summary of the elements and common defenses to preference claims.

Elements to a Preference Claim

In order to establish that a party received a preferential transfer, the plaintiff must prove that payments were received by a creditor on account of an “antecedent debt.” Further, the preferential payments must be made (i.) while the debtor was “insolvent”, (ii.) made within 90 days before the debtor filed for bankruptcy, and (iii.) the payments provide the creditor with more payments than it would receive if the debtor had liquidated under a chapter 7 liquidation.

Continue Reading Mortgage Lenders Network Files Preference Actions


In a recent opinion issued by the Honorable Kevin Gross of the United States Bankruptcy Court, District of Delaware,  the Court addressed the issue of whether a debtor was solvent when it made allegedly preferential transfers to the Defendant.  The Court’s decision provides a helpful analysis of the less frequent "solvency" defense to a preference action.  Further, the decision provides guidance regarding the evidentiary issues that arise when a party raises this defense.


The Court issued its decision in Miller v. Barenberg, et al. (In re Bernard Technologies, Inc.), Adv. No. 06-51017(KG), slip op. (Bankr.D.Del. Dec. 5, 2008).  In Bernard Technologies,  George Miller, the chapter 7 Trustee and plaintiff, sought to recover pre-petition transfers paid to Bernard’s former CEO, Dr. Sumner Barenberg (the "Defendant").  As an alleged "insider," the Trustee sought to recover transfers made to the Defendant during the one year prior to Bernard Technologies (the "Debtor") filing for bankruptcy.  One of the defenses raised by the Defendant was that the Debtor was solvent during both the 90 day preference period, as well as the one year preference period applied to insiders.

Continue Reading Using the Solvency Defense in a Preference Action: In re Bernard Technologies

Beginning on October 28, 2008,  Dura Automotive Systems filed approximately 170 avoidance actions pursuant to section 547(b) of the United States Bankruptcy Code.  Dura Automotive, along with its related entities, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on October 30, 2006.  The Debtors filed an initial plan of reorganization in August of 2007, however, a revised joint plan was not confirmed until May of 2008. 

Continue Reading Dura Automotive Systems Commences Preference Actions