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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Preference Attacks To Recover Prepetition Compensation Paid to Consultants of Troubled Companies

By Paul A. Rubin and Hanh V. Huynh

Employees of a troubled company who stay on as consultants to assist in liquidating its assets or preparing the company for a bankruptcy filing may later be disappointed to face claims to claw back their prepetition compensation.  Ironically, those who made it possible for the company to maximize the recovery on its assets or to file for bankruptcy, may be sued by a bankruptcy trustee for the return of monies received within 90 days of the bankruptcy filing as preferential payments.

While trade vendors and other unsecured creditors may be familiar with such claims, there are nuances to preference litigation against prepetition consultants that add layers of complexity not generally present in typical preference actions.  While the same defenses against other preference claims  are available to prepetition consultants, application of the defenses in this context requires consideration of certain factors that are not often scrutinized in the garden variety preference case.

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