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Home Case Studies Trustee’s Clawback Attempt Fails As the Debtor Received Subsequent New Value In Exchange of Payments

Trustee’s Clawback Attempt Fails As the Debtor Received Subsequent New Value In Exchange of Payments

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Before the Petition Date, the Debtors collectively operated a nursery which was the nation’s largest wholesale growers and distributors of container-grown shrubs, trees, perennials, roses, and groundcovers.

The Defendant, our client, is a Kansas-based company engaged in the transportation of nursery stocks to or for the debtors.

Upon the Debtors’ bankruptcy filing, the Chapter 7 Trustee for their estate commenced a clawback action against our client for an amount of $39,139.42. The Trustee alleged that these transfers were preferential and constructively fraudulent and may be recovered.

After an in-depth analysis of the case, we observed that the Debtors usually paid the Defendant’s invoices within ten days on average. On the other hand, the transfers in question were made about 13 days after the invoice date on average. We showed that various courts had found a difference of fewer than five days in the overall averages to be ordinary. Moreover, we also showed that the transfers fell well within the established norms of the freight trucking industry and therefore cannot be avoided.

Apart from the ordinary course of business defense, we also proved that the Defendant provided $31,694.42 as unpaid subsequent new value, which should be permitted to be set off from the alleged preferential transfers.

As for the fraudulent transfers allegations, we proved that the Defendant provided reasonably equivalent value in exchange for the transfers in question.

The Trustee decided to dismiss the case for no payment based on the strength of our defenses.

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Jones & Associates

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