Shumaker Manufacturing

A Legal & Industry Review


Bankruptcy Law Update: Preferences and Selected Bankruptcy Issues

Preference Claims:

Elements:  A preference is a transfer of property of a bankruptcy debtor that (1) was to or for the benefit of a creditor; (2) was on account of an antecedent debt; (3) was made while the debtor was insolvent; (4) was made within 90 days of the filing of the bankruptcy petition; and (5) allowed the creditor to receive more than the creditor would receive if the payment had not been made but the creditor receives what it would receive in a liquidation of the debtor.  These elements are almost always (but not absolutely always) met, but there are several defenses available:  subsequent new value, ordinary course of business (either between the parties or in the industry), contemporaneous exchange for new value, and others.

Important consideration!:  The most important rule to remember is to never, ever pay a preference demand without first performing a detailed analysis of the defenses.  The application of each defense is highly technical, and the interplay of the defenses is complicated.  This analysis needs to be done by bankruptcy counsel.  Bankruptcy debtors or trustees, when making demand for payment of a preference, frequently offer a discount of around 20% to settle.  Never accept this offer.  These claims can often be resolved for no payment or for a payment under 10% of the demand amount, but the analysis and outcome of each situation is highly fact specific.

Timing of the lawsuit:  A lawsuit to recover a preference claim can be brought as late as two years after the bankruptcy filing, and even possibly as late as three years if a trustee is appointed within the two years.

Retention of documents:  Upon learning of a customer’s bankruptcy, immediately move to protect the documents needed to present the preference defenses:  invoices, remittance advices, bills of lading, proofs of delivery, correspondence, and emails for one to two years before the bankruptcy filing.  Failure to preserve electronic communications and other evidence could cause the court to make an adverse presumption regarding their contents, which might hamper or preclude the ordinary course of business or other defenses.

Timing of payments:  For purposes of determining whether a payment is a preference, a transfer in the form of a check is made when the check is paid by the customer’s bank, not when the check is received.  Thus, a check may be received by a creditor outside the 90-day period but be paid by the debtor’s bank within the 90-day period, and would thus be potentially recoverable as a preference.  However, for the purpose of applying the various defenses to the preference claim, the relevant date is when the creditor received the payment.

Defenses:  If a payment meets the five criteria set out above for determining whether it is a preference, then the creditor looks to see if one of several defenses will allow the creditor to avoid liability for the preference: Continue reading


“New Revenue Procedure 2017-13 Provides Clarification of Safe Harbors for Management Contracts of Tax-Exempt Financed Facilities”

The Internal Revenue Service has issued Revenue Procedure 2017-13 that clarifies certain provisions of Revenue Procedure 2016-44.  For a full explanation of the provisions of Rev. Proc. 2016-44, see our client alert of August 24, 2016, as updated September 6, 2016.

Rev. Proc. 2016-44 is modified, amplified and superseded by Rev. Proc. 2017-13.

Effective Date.    Rev. Proc. 2017-13 applies to any management contract entered into on or after January 17, 2017.  An issuer may apply Rev. Proc. 2017-13 to any management contract entered into before January 17, 2017.  In addition, an issuer may apply the safe harbors of Rec. Proc. 97-13, as modified by Rev. Proc. 2001-39 and amplified by Notice 2014-67, to a management contract entered into before August 18, 2017 that is not materially modified or extended on or after August 18, 2017 (other than pursuant to a renewal option, defined as a provision under which either party has a legally enforceable right to renew the contact.  An automatic renewal for 1-year periods absent a notice of cancellation is not a renewal option). Continue reading


“When Worlds Collide: Article 2 of the Uniform Commercial Code and Chapter 11,” American Bankruptcy Institute, ABI Committee Newsletter, Volume 14, Number 3, July 2016

David Conaway’s article, “When Worlds Collide: Article 2 of the Uniform Commercial Code and Chapter 11” was the lead article in the American Bankruptcy Institute’s Unsecured Trade Creditors Newsletter, July 2016.

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Shorter Deadline for Filing Bankruptcy Claims and Other Changes to Bankruptcy Rules Starting December 1st

Creditors need to know of significant changes about to occur to the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”). On December 1, 2017, certain amendments to the Bankruptcy Rules will become effective. This article discusses two of the changes: 1) the period for filing proofs of claim is being shortened, and 2) secured creditors must timely file a claim to receive a distribution.

The time period for filing proofs of claim in most bankruptcy proceedings is being shortened. Under the amendment to Rule 3002(c) of the Bankruptcy Rules, the deadline for filing a proof of claim, in voluntary cases under Chapters 7, 12, and 13, will be 70 days after the bankruptcy is filed. By setting the claims bar date at 70 days from the date the bankruptcy was filed, as compared to the current deadline of 90 days from the date of the Section 341 meeting, the amendments significantly shorten the time to file a claim from approximately four months to just over two months. Creditors will need to move much more quickly to get their claims filed.

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“There is No Such Thing as a Free Horse”

“As a horse owner, I was excited to see on September 24, 2016, The Wall Street Journal published an article “The Need for Steed” in which it stated “the horse business is trotting ahead,” as women who rode as children are returning to the barn in droves. I know this feeling well. “[M]ore than 75% of horse owners are women,” according to the United States Equestrian Federation, and I have found that the horse barn is the equivalent of the golf course for many women professionals.” Continue reading