Avoidance Actions
Neiger LLP’s Avoidance Action Experience (Preference Actions and Fraudulent Transfers)
Avoidance actions are a core focus of our practice and our attorneys are generally aware of the latest legal opinions related to avoidance actions. In fact, Neiger LLP publishes the Avoidance Action Report, which is a one-of-a-kind quarterly report devoted exclusively to case law developments related to avoidance actions. To access past issues of the Avoidance Action Report, click here.
Neiger LLP attorneys has represented plaintiffs and defendants in hundreds of avoidance actions. This gives Neiger LLP attorneys a unique understanding of the merits of each case, which allows us to formulate the best strategy for resolving the case in a manner favorable to our client. Neiger LLP’s attorneys have the experience, practical “know-how,” and administrative capacity to represent preference and fraudulent transfer clients quickly, effectively, and in a low-cost manner.
What are Avoidance Actions?
Avoidance Actions are brought in a bankruptcy proceeding against corporations and individuals who have received payment from a bankrupt debtor. There are primarily two types of Avoidance Actions: Preference Actions and Fraudulent Transfer Actions.
Preference Actions and Preferential Transfers.
Bankruptcy Code section 547 empowers the debtor to avoid certain transfers made during the 90-day period (one year if the transferee was an insider) immediately before the commencement of a bankruptcy case. A lawsuit initiated to avoid such payments is called a “preference action.” The theory behind such actions is that the debtor was already insolvent at the time the payments were made and the payments therefore give preferential treatment to certain creditors over others ─ hence the names “preferential transfers” and “preference actions.”
Preference actions are often confusing to defendants who wonder, “why do I need to repay money I rightfully earned?” The answer is that you don’t necessarily have to return a single penny. If you have been sued in a preference action, there are several defenses you can assert. First and most obviously, you could demonstrate that at the time the alleged preferential transfer was made, the debtor was not insolvent. In addition, Bankruptcy Code section 547(c) provides several defenses, including:
- The transfer was intended to be and was in fact a “contemporaneous” (simultaneous) exchange for new value given to the debtor.
- The payment was for a debt incurred in the ordinary course of business and was made in the ordinary course of business and pursuant to the ordinary business terms of the industry.
- The transferee provided the debtor with “new value,” usually in the form of goods, after the “preferential” transfer was made.
Neiger LLP attorneys have extensive experience in “preference actions,” having been involved in hundreds of such actions on behalf of debtors. This unique knowledge of how debtors prosecute such actions gives Neiger LLP the unique capability to defend against all debtor tactics to reclaim money that you rightfully earned. If you have been named as a defendant in a preference action, call Neiger LLP for a free explanation of your rights and defenses. We will fight for your right to keep your hard earned-money.
Fraudulent Transfers.
A “fraudulent transfer” is any transfer or obligation made within two years prior to filing for bankruptcy with the actual intent to hinder, delay, or defraud a present or future creditor. Under section 548 of the Bankruptcy Code, the debtor may avoid fraudulent transfers and recover any property of the estate that was fraudulently conveyed to a third party. In the absence of fraudulent intent, a transfer may still be avoidable as “constructively fraudulent” under both the Bankruptcy Code and applicable state law if such transfer was made in exchange for less than reasonably equivalent value and (i) the debtor was insolvent at the time of the transfer, (ii) the debtor was rendered insolvent as a result of the transfer, or (iii) the transfer was made to an insider of the debtor.
Avoidance Action Report – June 2009