In the last few days, hundreds of bankruptcy complaints against trade creditors were filed by bankrupt Chapter 11 debtor VRG Liquidating, LLC (formerly EMS) (docket 16-10971). The crux of the complaints that many businesses will be shortly served concern “preferences,” requesting the return of money received from bankrupt debtors 90 days prior to the bankruptcy filing of April 18, 2016 for goods or services sold. However, before you go writing a check to return hard earned money, you should know that you may have defenses that can be asserted.
What is Preference?
A preference is a payment received from a debtor, made within 90 days of the bankruptcy filing. Bankruptcy Code section 547(b) allows a bankruptcy trustee or debtor-in-possession (here, VRG) to avoid these payments, if the transfers were to or for the benefit of a creditor on account of an antecedent debt, while the debtor was insolvent. When Congress enacted the Bankruptcy Code, the policy behind preferences was to level the playing field for all creditors by not allowing a creditor to receive more than it would have within the debtor’s bankruptcy case.