Preference and Fraudulent Conveyance Clawback Action Dismissed for No Payment; Debtor Received Value In Exchange of Transfer

The Debtors held themselves as direct marketing logistics solutions and management companies that provide comprehensive, specialized, coordinated, and integrated marketing solutions to multinational clients in the IT, hospitality, financial, and publication industries. Our Client, the Defendant, is a Texas-based company that manufactures high-quality, die-cut, custom mail envelopes for the direct mail and advertising industry.

Plaintiff sought to avoid and recover $46,824.49 as allegedly preferential and fraudulent transfers through its complaint.

J&A showed with its analysis that the transfers could not be recovered because Defendant provided subsequent new value to the Debtors after the first allegedly preferential transfers. The Defendant offered subsequent new value in an amount much greater than the allegedly preferential transfers. Several courts have held that such new value may be offset against a preference claim, and applying the same precedents in our client’s case, we were able to bring the net claim down to zero.

To further strengthen our client’s position, we also showed that the transfers were made between the parties in the ordinary course of business. When comparing the weighted average of the preference payments and the historical payments, the difference was too insignificant to be considered preferential, and all the preference period transfers fell within the range of payments during the historical period. Moreover, Defendant also had a hypothetical reclamation claim against the Debtors for $19,765.28.

Finally, we proved that the Debtors made the transfers in consideration of the goods and services that Defendant delivered to the Debtors and according to the parties’ contractual terms. Thus, Plaintiff could not recover them as alleged fraudulent transfers.

Based on the strength of our position statement, Plaintiff agreed to dismiss the case for no payment.

(81)