Secured Transactions
Assignment 31
Trustees vs. Secureds:
Preferences
1
The Big Picture
Part Two: The Creditor Third Party Relationship
Chapter 9: Competitions for Collateral
Assignment 28: Lien Creditors vs Secureds: The Basics
Assignment 29: Lien Creditors vs Secureds: Future Advance
Assignment 31: Trustees vs Secureds: Preferences
Assignment 32: Secureds vs. Secureds: Basics
Assignment 36: Buyers vs. Secureds
Land, Fixtures, Agriculture, and Minerals
2
The policies
Petition
State: the race
of diligence
Bankruptcy:
equality is equity
3
The policies
Petition
State: the race
of diligence
Bankruptcy:
equality is equity
90 day
preference period
4
The policies
Petition
State: the race
of diligence
Bankruptcy:
equality is equity
90 day
preference period
5
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
6
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
(1) To or for the benefit of a creditor
7
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
8
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
9
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
(4) Made -(A) on or within 90 days before the date of the filing . . .
10
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
(4) Made -(A) on or within 90 days before the date of the filing . . .
(B) between 90 days and one year before the date of the
filing . . . if such creditor . . . was an insider, §101(31)
11
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
(4) Made -(A) on or within 90 days before the date of the filing . . .
(B) between 90 days and one year before the date of the
filing . . . if such creditor . . . was an insider, §101(31)
(5) That enables such creditor to receive more than such
creditor would receive if the case were . . . under chapter 7
. . . [and] the transfer had not been made . . .
12
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
(4) Made -(A) on or within 90 days before the date of the filing . . .
(B) between 90 days and one year before the date of the
filing . . . if such creditor . . . was an insider, §101(31)
(5) That enables such creditor to receive more than such
creditor would receive if the case were . . . under chapter 7
. . . [and] the transfer had not been made . . .
13
When is a security interest transfer made?
§547(e) (2). A transfer is made –
(A) At the time such transfer takes effect between the
transferor and the transferee, if such transfer is perfected
at, or within 30 days after such time . . .
(B) At the time such transfer is perfected, if such transfer is
perfected after such 30 days . . .
(1). For purposes of this section -(A) A transfer of real property . . . is perfected when a bona
fide purchaser . . . cannot acquire an interest that is
superior . .
(B) A transfer of a fixture or property other than real
property is perfected when a creditor . . . cannot acquire a
judicial lien that is superior . . .
14
Problem 31.1, page 518
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
We represent the trustee in bankruptcy in a case filed
under Chapter 11 on September 1 and converted to
Chapter 7 on December 30.
15
Problem 31.1, page 518
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
We represent the trustee in bankruptcy in a case filed
under Chapter 11 on September 1 and converted to
Chapter 7 on December 30.
We are deciding whether to attack transactions as
preferences
16
Problem 31.1, page 518
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
We represent the trustee in bankruptcy in a case filed
under Chapter 11 on September 1 and converted to
Chapter 7 on December 30.
We are deciding whether to attack transactions as
preferences
From what date does the preference period run?
17
Problem 31.1, page 518
Jun 3
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
18
Problem 31.1, page 518
a.
SA
FS
loan
Ch 11
Convert
to Ch 7 Now
Aug15
Sep 1
Dec 30
Wooden borrows $300K secured from 1st Bank Aug 15.
19
Problem 31.1, page 518
SA
FS
loan
FS
filed
Aug15 Aug16
a.
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day.
20
Problem 31.1, page 518
SA
FS
loan
FS
filed
Aug15 Aug16
a.
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable?
21
The Statute
§547(b). The trustee may avoid any transfer of an interest of
the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
(4) Made -(A) on or within 90 days before the date of the filing . . .
(B) between 90 days and one year before the date of the
filing . . . if such creditor . . . was an insider, §101(31)
(5) That enables such creditor to receive more than such
creditor would receive if the case were . . . under chapter 7
. . . [and] the transfer had not been made . . .
22
The Statute
§547(b). The trustee may avoid any transfer of an interest of
the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
(4) Made -(A) on or within 90 days before the date of the filing . . .
(B) between 90 days and one year before the date of the
filing . . . if such creditor . . . was an insider, §101(31)
(5) That enables such creditor to receive more than such
creditor would receive if the case were . . . under chapter 7
. . . [and] the transfer had not been made . . .
23
Problem 31.1, page 518
SA
FS
loan
FS
filed
Aug15 Aug16
a.
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
24
Problem 31.1, page 518
Unsecured
loan
Ch 11
Convert
to Ch 7 Now
Feb 7
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
25
Problem 31.1, page 518
Unsecured
loan
SA
FS filed
Ch 11
Convert
to Ch 7 Now
Feb 7
Jul 11
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
On July 11 Wooden granted a SI and Secondbank filed.
26
Problem 31.1, page 518
Unsecured
loan
SA
FS filed
Ch 11
Convert
to Ch 7 Now
Feb 7
Jul 11
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
On July 11 Wooden granted a SI and Secondbank filed.
When was transfer? §547(e)(2)(A).
27
Problem 31.1, page 518
Unsecured
loan
SA
FS filed
Ch 11
Convert
to Ch 7 Now
Feb 7
Jul 11
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
On July 11 Wooden granted a SI and Secondbank filed.
When was transfer? §547(e)(2)(A). Avoidable?
28
Problem 31.1, page 518
Unsecured
loan
SA
FS filed
Ch 11
Convert
to Ch 7 Now
Feb 7
Jul 11
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
On July 11 Wooden granted a SI and Secondbank filed.
When was transfer? §547(e)(2)(A). Avoidable? Yes.
29
Problem 31.1, page 518
SA
FS
loan
Ch 11
Convert
to Ch 7 Now
Feb 7
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
On July 11 Wooden granted a SI and Secondbank filed.
When was transfer? §547(e)(2)(A). Avoidable? Yes.
c.
Wooden borrows $300K secured from 3rd Bank Feb 7.
30
Problem 31.1, page 518
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Feb 7
Jul 11
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
On July 11 Wooden granted a SI and Secondbank filed.
When was transfer? §547(e)(2)(A). Avoidable? Yes.
c.
Wooden borrows $300K secured from 3rd Bank Feb 7. FS
lost in mail, filed July 11.
31
Problem 31.1, page 518
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Feb 7
Jul 11
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
On July 11 Wooden granted a SI and Secondbank filed.
When was transfer? §547(e)(2)(A). Avoidable? Yes.
c.
Wooden borrows $300K secured from 3rd Bank Feb 7. FS
lost in mail, filed July 11. Avoidable?
32
Problem 31.1, page 518
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Feb 7
Jul 11
Sep 1
Dec 30
a.
Wooden borrows $300K secured from 1st Bank Aug 15. 1st
Bank files the next day. Avoidable? No, 547(e)(2).
b.
Wooden borrows $300K from 2nd Bank unsecured Feb 7.
On July 11 Wooden granted a SI and Secondbank filed.
When was transfer? §547(e)(2)(A). Avoidable? Yes.
c.
Wooden borrows $300K secured from 3rd Bank Feb 7. FS
lost in mail, filed July 11. Avoidable? Yes. §547(e)(1)(B).
(But see 9-516(a)!)
33
When is a security interest transfer made?
§547(e) (2). A transfer is made –
(A) At the time such transfer takes effect between the
transferor and the transferee, if such transfer is perfected
at, or within 30 days after such time . . .
(B) At the time such transfer is perfected, if such transfer is
perfected after such 30 days . . .
(1). For purposes of this section -(A) A transfer of real property . . . is perfected when a bona
fide purchaser . . . cannot acquire an interest that is
superior . .
(B) A transfer of a fixture or property other than real
property is perfected when a creditor . . . cannot acquire a
judicial lien that is superior . . .
34
The Statute
§547(b). The trustee may avoid any transfer of an interest of
the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
(4) Made -(A) on or within 90 days before the date of the filing . . .
(B) between 90 days and one year before the date of the
filing . . . if such creditor . . . was an insider, §101(31)
(5) That enables such creditor to receive more than such
creditor would receive if the case were . . . under chapter 7
. . . [and] the transfer had not been made . . .
35
Problem 31.1, page 518
d.
SA
FS
loan
Ch 11
Convert
to Ch 7 Now
Jul 21
Sep 1
Dec 30
Wooden borrows $30K purchase money secured from 4th
Bank July 21.
36
Problem 31.1, page 518
d.
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Jul 21
Aug 4
Sep 1
Dec 30
Wooden borrows $30K purchase money secured from 4th
Bank July 21. 4th Bank files August 4.
37
Problem 31.1, page 518
d.
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Jul 21
Aug 4
Sep 1
Dec 30
Wooden borrows $30K purchase money secured from 4th
Bank July 21. 4th Bank files August 4. Avoidable?
38
547(3) Purchase Money Exception
(c) (3) [Then] The trustee may not avoid under this section a
transfer . . . that creates a security interest in property acquired
by the debtor—
(A) to the extent such security interest secures new value that
was—
(i) given at or after the signing of a security agreement that
contains a description of such property as collateral;
(ii) given by or on behalf of the secured party under such
agreement;
(iii) given to enable the debtor to acquire such property;
and
(iv) in fact used by the debtor to acquire such property; and
(B) that is perfected on or before 30 days after the debtor
receives possession of such property;
39
Problem 31.1, page 518
d.
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Jul 21
Aug 4
Sep 1
Dec 30
Wooden borrows $30K purchase money secured from 4th
Bank July 21. 4th Bank files August 4. Avoidable? No.
§547(c)(3).
40
Problem 31.1, page 518
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Jul 21
Aug 4
Sep 1
Dec 30
d.
Wooden borrows $30K purchase money secured from 4th
Bank July 21. 4th Bank files August 4. Avoidable? No.
§547(c)(3).
e.
Different if 4th Bank disbursed to Wooden and Wooden used
other funds to purchase?
41
Problem 31.1, page 518
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Jul 21
Aug 4
Sep 1
Dec 30
d.
Wooden borrows $30K purchase money secured from 4th
Bank July 21. 4th Bank files August 4. Avoidable? No.
§547(c)(3).
e.
Different if 4th Bank disbursed to Wooden and Wooden used
other funds to purchase? Not PMSI. §547(c)(3)(A)(iv) “in
fact used by the debtor to acquire such property.”
42
Problem 31.1, page 518
SA
FS
loan
FS filed
Ch 11
Convert
to Ch 7 Now
Jul 21
Aug 4
Sep 1
Dec 30
d.
Wooden borrows $30K purchase money secured from 4th
Bank July 21. 4th Bank files August 4. Avoidable? No.
§547(c)(3).
e.
Different if 4th Bank disbursed to Wooden and Wooden used
other funds to purchase? Not PMSI. §547(c)(3)(A)(iv) “in
fact used by the debtor to acquire such property.” Still no
different. §547(e)(2)(A).
43
Problem 31.1, page 518
Loan
Ch 11
Convert
to Ch 7 Now
Mar 9
Sep 1
Dec 30
f.
Elsa lends March 9.
44
Problem 31.1, page 518
Loan
SA
FS filed
Mar 9 Apr 12
f.
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
Elsa lends March 9. SA signed and FS filed April 12.
45
Problem 31.1, page 518
Loan
SA
FS filed
Mar 9 Apr 12
f.
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
Elsa lends March 9. SA signed and FS filed April 12.
Avoidable?
46
Problem 31.1, page 518
Loan
SA
FS filed
Mar 9 Apr 12
f.
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
Elsa lends March 9. SA signed and FS filed April 12.
Avoidable? Yes. §101(31)(B)(vi) and (45).
47
Problem 31.1, page 518
Loan
SA
FS filed
Mar 9 Apr 12
f.
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
Elsa lends March 9. SA signed and FS filed April 12.
Avoidable? Yes. §101(31)(B)(vi) and (45).
When was the transfer made?
48
Problem 31.1, page 518
Loan
SA
FS filed
Mar 9 Apr 12
f.
Ch 11
Convert
to Ch 7 Now
Sep 1
Dec 30
Elsa lends March 9. SA signed and FS filed April 12.
Avoidable? Yes. §101(31)(B)(vi) and (45).
When was the transfer made? April 12. §547(e)(2)(B).
49
Problem 31.2, page 519
$1.5 million
Dysan verdict
Creditors
50
Problem 31.2, page 519
$1.5 million
Dysan verdict
Creditors
FS FS FS
51
Problem 31.2, page 519
$1.5 million
Dysan verdict
Creditors
Judgment
FS FS FS
52
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
53
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
The debtor is still in business. What should we do?
54
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
The debtor is still in business. What should we do? Levy?
55
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
The debtor is still in business. What should we do? Levy?
File an involuntary bankruptcy?
56
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
The debtor is still in business. What should we do? Levy?
File an involuntary bankruptcy? Accept a security interest?
57
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
The debtor is still in business. What should we do? Levy?
File an involuntary bankruptcy? Accept a security interest?
Deal: Preferred creditors assign us our prorata share of their
claims.
58
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
The debtor is still in business. What should we do? Levy?
File an involuntary bankruptcy? Accept a security interest?
Deal: Preferred creditors assign us our prorata share of their
claims.
Example: Assets are $1 million. Debt is $4 million. FS
debt is $2 million.
59
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
The debtor is still in business. What should we do? Levy?
File an involuntary bankruptcy? Accept a security interest?
Deal: Preferred creditors assign us our prorata share of their
claims.
Example: Assets are $1 million. Debt is $4 million. FS
debt is $2 million.
Deal: We get this fraction of the assets: $1,547/$3,547
60
Problem 31.2, page 519
$1.5 million
Dysan verdict
90 days
Creditors
Judgment
Now
FS FS FS
The debtor is still in business. What should we do? Levy?
File an involuntary bankruptcy? Accept a security interest?
Deal: Preferred creditors assign us our prorata share of their
claims.
Example: Assets are $1 million. Debt is $4 million. FS
debt is $2 million.
Deal: We get this fraction of the assets: $1,547/$3,547
If others figure it out, we cut them in.
61
The Statute
§547(b). The trustee may avoid any transfer (§101(54)) of an
interest of the debtor in property
(1) To or for the benefit of a creditor
(2) For or on account of an antecedent debt . . .
(3) Made while the debtor is insolvent, §101(32)
(4) Made -(A) on or within 90 days before the date of the filing . . .
(B) between 90 days and one year before the date of the
filing . . . if such creditor . . . was an insider, §101(31)
(5) That enables such creditor to receive more than such
creditor would receive if the case were . . . under chapter 7
. . . [and] the transfer had not been made . . .
62
Problem 31.3, page 519
1.3M
1.2M
2.5M
90 days before
63
Problem 31.3, page 519
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
64
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
65
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
The trustee may avoid any transfer
1. To a creditor on account of an antecedent debt
2. Made while debtor was insolvent
3. Made within 90 days before the petition
4. That enables the creditor to receive more than it would if
debtor didn’t make the transfer but filed chapter 7.
66
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
The trustee may avoid any transfer. What is the “transfer?”
1. To a creditor on account of an antecedent debt
2. Made while debtor was insolvent
3. Made within 90 days before the petition
4. That enables the creditor to receive more than it would if
debtor didn’t make the transfer but filed chapter 7.
67
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
Payments and
security interests
in inventory
items §547(e)(3) 90 days before
700K
800K
1.5M
Bankruptcy
The trustee may avoid any transfer
1. To a creditor on account of an antecedent debt
2. Made while debtor was insolvent
3. Made within 90 days before the petition
4. That enables the creditor to receive more than it would if
debtor didn’t make the transfer but filed chapter 7.
68
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
§547(c)(5). “The trustee may not avoid . . . a transfer . . . that
creates a perfected security interest in inventory or a receivable .
. . except to the extent that the aggregate of all such transfers . . .
caused a reduction, as of the date of filing . . . of any amount by
which the debt secured . . . exceeded the value of all security
interests . . . 90 days before the filing of the petition.”
69
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
§547(c)(5). “The trustee may not avoid . . . a transfer . . . that
creates a perfected security interest in inventory or a receivable .
. . except to the extent that the aggregate of all such transfers . . .
caused a reduction, as of the date of filing . . . of any amount by
which the debt secured . . . exceeded the value of all security
interests . . . 90 days before the filing of the petition.”
70
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
§547(c)(5). “The trustee may not avoid . . . a transfer . . . that
creates a perfected security interest in inventory or a receivable .
. . except to the extent that the aggregate of all such transfers . . .
caused a reduction, as of the date of filing . . . of any amount by
which the debt secured . . . exceeded the value of all security
interests . . . 90 days before the filing of the petition.”
71
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
§547(c)(5). “The trustee may not avoid . . . a transfer . . . that
creates a perfected security interest in inventory or a receivable .
. . except to the extent that the aggregate of all such transfers . . .
caused a reduction, as of the date of filing . . . of any amount by
which the debt secured . . . exceeded the value of all security
interests . . . 90 days before the filing of the petition.”
72
Problem 31.3, page 519
Did Swissbank
receive an
avoidable
preference?
1.3M
1.2M
2.5M
90 days before
700K
800K
1.5M
Bankruptcy
§547(c)(5). “The trustee may not avoid . . . a transfer . . . that
creates a perfected security interest in inventory or a receivable .
. . except to the extent that the aggregate of all such transfers . . .
caused a reduction, as of the date of filing . . . of any amount by
which the debt secured . . . exceeded the value of all security
interests . . . 90 days before the filing of the petition.” $500K 73
Problem 31.4, page 519
1.
Our law firm settles a class action for $247 million to the
class and $33 million to our firm.
2.
The defendant pays by check.
3.
We deposit the check.
4.
The check clears.
Is it time to celebrate?
74
Problem 31.4, page 519
1.
Our law firm settles a class action for $247 million to the
class and $33 million to our firm.
2.
The defendant pays by check.
3.
We deposit the check.
4.
The check clears.
Is it time to celebrate? No.
75
Problem 31.4, page 519
1.
Our law firm settles a class action for $247 million to the
class and $33 million to our firm.
2.
The defendant pays by check.
3.
We deposit the check.
4.
The check clears.
Is it time to celebrate? No.
When will it be time to celebrate?
76
Problem 31.4, page 519
1.
Our law firm settles a class action for $247 million to the
class and $33 million to our firm.
2.
The defendant pays by check.
3.
We deposit the check.
4.
The check clears.
Is it time to celebrate? No.
When will it be time to celebrate? 90 days after the check
clears.
77
Problem 31.5, page 519
1.
Bowers story. Bowers solution: let debtors distribute
their estates
2.
Modern Chapter 11 preference avoidance
a. Preferences recovered before plan confirmation go to
unsecured creditors
b. Strategy: confirm plan first, then recover preferences
c. Thousands of preference actions in a single case
3.
Madoff and other Ponzi schemes
4.
Should preference avoidance be abolished?
5.
Congress responded in 2005 with a $5,850 minimum.
§547(c)(9)
78