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Delaware Court Holds That Range of Payments Triumphs Over Averages in Computing Ordinary Course

Chapter 7 Tr. v. Moran Towing Corp. (In re AES Thames, LLC), Nos. 11-10334 (KJC), 13-50395 (KJC), 2016 Bankr. LEXIS 706 (U.S. Bankr. D. Del. Mar. 3, 2016)

March 3, 2016, Delaware – The Chapter 7 Trustee filed an adversary complaint against Defendant Moran Towing Corporation to avoid and recover two transfers as preference payments pursuant to Bankruptcy Code §547(b) and §550. Moran did not dispute that the transfers met the requirements of § 547(b), but argued that the transfers were not avoidable under Bankruptcy Code §547 (c) (2) because the Debtor paid the transfers in the ordinary course of its business with Moran. The parties disagreed on how the payments should be analyzed.

The Trustee argued that during the historical period, the Debtor paid Moran on average 2.45 days after the due date, while during the preference period the Debtor paid Moran on average 15.63 days after the due date. The Trustee also pointed out that during the historical period; only 4 of 164 invoices (or 2.44%) were paid 10 days or later after the due date. Therefore, the preference period transfers did not conform to more than 97% of the payments during the historical period. Moran argued that during the historical period, payments ranged between 28 (i.e., 28 days before the due date) to 35 days after the due date. Therefore, the range of payments during the preference period (10-19 days) fell within the historical period range.

The Court found that the Trustee’s reliance on the average payment statistics was countered by Moran’s reliance on the range of payment statistics. The Court concluded that the amount of the alleged transfers fell within the range of the amount of payments made during the historical period. The alleged transfers continued the Debtor’s practice of paying a number of invoices together for all cargo shipped in the previous month. The alleged transfers, like all payments during the historical period, were made by wire transfer. The parties stipulated that Moran did not take any unusual action to collect on the preference period invoices, and there was no evidence that Moran did anything to gain an advantage over other creditors during the preference period. The Court ruled in favor of Moran and concluded that the business relationship between Moran and the Debtor fell within the type of relationship the ordinary course of business defense was intended to protect.