Legal Update: Important Preference Decision
by: David Conaway
Shumaker, Loop and Kendrick, LLP; Charlotte, N.C.
When a vendor gets hit with a preference claim, most often such claims are settled without significant court proceedings. In fact, in many cases, prior to filing a preference complaint, a debtor or trustee will make an informal demand for repayment of the alleged preference. The usual procedure is that the parties exchange documentation that supports the allegations of a preferential payment and the assertion of the defenses of new value, ordinary course of business or contemporaneous exchange for value. Normally, based on such documentation, the parties are able to settle the preference claim out of court.
Recent Developments Affecting Businesses and Chapter 11 Cases under the Bankruptcy Abuse Prevention and Consumer Protection Act:
by: Hon. Joan N. Feeney
U.S. Bankruptcy Court
Hon. Arthur J. Gonzalez
U.S. Bankruptcy Court; New York
Edward T. Gavin
NachmanHaysBrownstein, Inc.
Wilmington, Del.
Judith Greenstone Miller
Jaffe Raitt Heuer & Weiss, P.C.; Southfield, Mich.
Adrienne Murphy
Sundberg Furniture Manufacturing Co.; Los Angeles
The Bankruptcy Abuse Prevention Consumer Protection Act of 2005 (BAPCPA) imposes, among other things, new duties and responsibilities on creditors’ committees. Section 1102(b)(3) mandates “information sharing” and “solicitation of creditors” as
follows:
A committee appointed under subsection (a) shall -
- provide access to information for creditors who –
- hold claims of the kind represented by that committee, and
- are not appointed by the committee;
- solicit and receive comments from creditors described in paragraph (A); and
- be subject to a court order that compels any additional report or disclosure to be made to the creditors described in subparagraph (A).
Legislative History
There is a paucity of legislative history surrounding §1102(b)(3). This “information sharing” provision was first introduced during the 106th Congress by Representative Nydia Velazquez of New York as House Amendment 57 to the then-pending bankruptcy legislation. Rep. Velazquez expressed that the intent in introducing the legislation was to protect small business creditors that do not have access to the same information as provided to large creditors involved in a case. The absence of such information precludes such small business creditors from being able to accurately access and make business decisions affected by the outcome of the bankruptcy case.
Read the full article. (Materials from the 2006 Winter Leadership Conferece)