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Wrestling With the Meaning of 'Ordinary' Under the Bankruptcy Code
It is impossible to predict whether supply chain disruptions caused by the COVID pandemic, increased interest rates, market volatility, changes in workforce trends, inflationary pressures, and geopolitical upheaval will lead to a recession and wave of bankruptcies. Regardless, certain sectors and businesses undoubtedly will experience distress, and doing business with distressed customers always brings the risk of nonpayment.
But there is another risk that can be even more frustrating. One of the basic policies of bankruptcy law is that creditors who receive payments on antecedent debts as the debtor slides into bankruptcy may have those payments recovered by the bankruptcy estate as a preference. In the face of this risk, suppliers have taken comfort knowing the Bankruptcy Code protects regular, ordinary commercial transactions between distressed companies and vendors willing to continue the relationship. But what is ordinary? For decades, courts have wrestled with this question. And it can involve significant sums. In a recent decision of the U.S. Bankruptcy Court for the Southern District of Indiana in the Chapter 11 case In re HHGregg, (Adv. No. 17-50282), a supplier whose invoices were paid consistent with payment terms was nevertheless held liable for $3,517,805.06 plus prejudgment interest as a preference.
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