Introduction
From May 11 through May 17, Alfred Giuliano, the Chapter 7 Trustee (the "Trustee") for the bankruptcy estate of Leading Edge Logistics, LLC (the "Debtor"), filed approximately 86 complaints in preference action cases. The Trustee filed these actions in the Delaware Bankruptcy Court and argued that the defendants hold assets belonging to the Debtor and that the payments received by various defendants are avoidable and subject to recovery under 11 U.S.C. § 547 of the United States Bankruptcy Code. This post will briefly cover the Debtor's bankruptcy proceedings. The Trustee is represented by the law firm Subranni Zauber LLC.
Background
The Debtor was a privately-held global logistics management company that provided truckload transportation, specialized heavy haul transportation, freight forwarding, international shipping, intermodal, air/ocean, contract carriage, and warehousing. At the time of the bankruptcy filing, one of the principal assets of the Debtor was its accounts receivable, which it valued at approximately $14 million.
The Trustee obtained Court authority to run the Debtor's business for a short time while he liquidated the accounts receivable in an effort to maximize the recovery for the creditors of the Debtor. Having handled the liquidation of all the remaining assets of the Debtor, the Trustee is also tasked with prosecuting litigation intended to increase the assets available to distribute to the company's creditors. This includes filing and prosecuting preference actions. The Debtor's bankruptcy, as well as the preference actions, are before the Honorable Mary F. Walrath.
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 I 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.
