Mediating Preference Actions in Bankruptcy Cases

Sylvia Mayer of smayerlaw.com joins Mac Pierre-Louis and Natalia Ołowska-Czajka of OlowskaPierre.com to talk about a very important bankruptcy issues, which can be mediated, namely the preference actions.

Preference actions bring a lot of contentious issues into the bankruptcy proceedings yet mediation can offer a good way out to avoid the courtroom and a legal battle when threat of such a claim arises.

Sylvia explains that the preference actions can arise, where a transfer is made:

• To or for the benefit of a creditor • For or on account of an antecedent debt • Within 90 days before the filing for a non-insider creditor

• At a time when debtor was insolvent, which is presumed

• Enabling the creditor to receive more than the creditor would in a chapter 7 liquidation.

If such an action is brought within the bankruptcy proceedings, there is still a defence to it. Most common defenses are:

• New Value: Creditor extended credit after receipt of the challenged transfer

• Ordinary Course of Business (Subjective Test): Based on the historical payments between that debtor and that creditor, the challenged payment was made around the same time and in the same form as payments were made historically between the parties.

Mediation allows to bring the parties together and assess these claims privately, saving time and costs to everyone involved.