From April 24 to 27, 2015, Charles A. Stanziale, Jr., as the Chapter 7 Trustee of CPI Corp., et al., filed preference complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, and to disallow claims of the defendants pursuant to Section 502(d).
By way of background, CPI Corp., et al. (the "Debtors") filed petition for bankruptcy in the District of Delaware on May 1, 2013 under Chapter 7 of the Bankruptcy Code. By order dated May 28, 2013, the Debtors' Chapter 7 cases were consolidated for procedural purposes only and therefore are being jointly administered under Case No. 13-11158 pursuant to Bankruptcy Rule 1015(b).
The law firm of Ciardi Ciardi & Astin represents the Chapter 7 Trustee in these various preference cases. The pretrial conference has not been scheduled. These adversary actions, as well as the Debtors' bankruptcy proceeding, are before the Honorable Brendan L. Shannon.
Defenses to a Preference Action
Preference actions are a form of litigation specifically provided for by the Bankruptcy Code which are intended to recover payments made by the Debtor within the 90 days prior to declaring bankruptcy. The presumption is that the Debtor knew it was going to file bankruptcy, so any payments it made during this 90-day window went to friends and people it wanted to keep happy, and stiffed those the Debtor's management didn't like. Recognizing that these payments aren't always made for inappropriate reasons, the Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the "ordinary course of business defense" and the "new value defense." For reader's looking for more information concerning claims and defenses in preference litigation, attached is a booklet that we have prepared on the subject: " A Preference Reference: Common Issues that Arise in Delaware Preference Litigation."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.