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Home Case Studies Transfers Shown Ordinary and Trustee’s Fraud Claim Shown Implausible; Clawback Attempt Fails

Transfers Shown Ordinary and Trustee’s Fraud Claim Shown Implausible; Clawback Attempt Fails

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The Debtors were a Georgia-based company engaged in manufacturing and distributing soft surface floor covering. The Defendant is a not-for-profit shippers association based in Minnesota providing freight services.

After the Debtors filed for bankruptcy, the Trustee for the Debtors’ estate commenced a clawback action against the Defendant. The Trustee alleged that Defendant should return $27,214.01 as alleged preferential transfers. The Trustee also alleged that the transfers were made with an actual intent to hinder, delay, or defraud creditors.

Upon analysis, we proved that the transfers in question fell in the historical range of payments and were made only five days late on average. With strong precedents, we demonstrated that payments made in a similar fashion fall under the ordinary course of business defense and are protected from the Trustee’s avoidance powers. We also proved that after the first allegedly preferential payment, Defendant provided subsequent new value of $26,450.56, which could be set off against the claim amount in question, leaving only about $700 as the net claim.

We also proved that the Trustee failed to plead its fraud claims sufficiently. In any event, the transfers were for the amounts outlined in the latter’s invoices, and the amounts were consistent with the agreement between the parties.

Based on the strength of Defendant’s position statement, the Trustee agreed to dismiss the case for no payment.

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Jones & Associates

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