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> IMPROPER TRANSFER CLAIMS – AVOIDANCE ACTIONS Preference Claims. See 11 U.S.C. § 547.
- Elements required for avoidance of certain pre-petition payments or asset transfers (see 11 U.S.C. § 547(b)):
i. Transfer to or for benefit of creditor;
ii. For or on account of antecedent debt owed by debtor;
iii. Made while debtor insolvent (presumed insolvent within 90 days of filing);
iv. Made to transferee within 90 days before filing, or within one year for insiders; and
v. Enables creditor to receive more than it would have in liquidation.
- Defenses (see 11 U.S.C. § 547(c)) include:
i. Contemporaneous exchange for new value;
ii. Ordinary course of business or according to ordinary business terms;
iii. Subsequent new value; and
iv. “Earmarking” defense (judicially created defense).
- Provisions limiting “nuisance” preference claims:
i. $6,425 threshold – minimum value of preference claim against creditor of business debtor. See 11 U.S.C. § 547(c)(9).
ii. Venue of preference action – for preferences involving (i) money judgment of or property worth less than $1,375, (ii) consumer debt less than $20,450 or (iii) non-consumer debt against a noninsider of less than $13,650, the action may be commenced only in district court where defendant resides. See 28 U.S.C. § 1409(b).
- Fraudulent Conveyances. See 11 U.S.C. § 548.
- Transfer of an interest in property or any obligation incurred by the debtor within two years before the
date of filing of a petition when the debtor voluntarily or involuntarily made such transfer:
- with actual intent to hinder, delay or defraud its current or future creditors – “actual fraud”; or
- under a theory of “constructive fraud” - where insufficient consideration was given for such interest or asset, when debtor was insolvent, or by which the debtor was rendered insolvent, had or was left with unreasonably small capital, or which would cause the debtor to incur debts beyond its ability to pay as they matured.
- States have their own fraudulent conveyance law provisions with differing “reachback” periods than that provided for by the Bankruptcy Code. State law fraudulent conveyance claims may be pursued by a trustee under 11 U.S.C. § 544(b). Individual state laws may allow a “reachback” period to be as much as six years, as in New York.
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