A New Regime in Preference Litigation

One of the provisions of the Small Business Reorganization Act amends the language of Bankruptcy Code Section 547 — which gives trustees and debtors in possession the right to seek to recover a payment to a third party in the 90-day period prior to the commencement of a bankruptcy case as a "preference" — to add a due diligence requirement. Though the intent behind the added language seems clear, it may not have its intended effect.

10 minute readApril 01, 2020 at 12:03 AM
By
Steve Werth
A New Regime in Preference Litigation

To a layperson, the idea that a debtor can assert a cause of action against a company who supplied goods or services to a debtor before the bankruptcy case, whom the debtor then paid, seems preposterous.

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