Alex Mattera Quoted in Massachusetts Lawyers Weekly: Trustee Can Recoup ‘Preferential Pre-petition Transfers”

Excerpted from the April 11, 2024 edition of Massachusetts Lawyers Weekly

A U.S. Bankruptcy Court judge has ruled that a Chapter 7 trustee could recover $56,000 in transfers the debtor made to one of its creditors during the 90-day “preferential period” leading up to its bankruptcy filing.

In Section 547(b) of the U.S. Bankruptcy Code, a bankruptcy trustee is authorized to avoid preferential transfers made by a debtor within 90 days before the petition if it can show that the transfers were made to satisfy a preexisting debt.

In this case, the debtor (seafood distributor National Fish and Seafood) filed for bankruptcy on 5/29/2019. In the months prior, one of their vendors (Northern Ocean Liquidating Corp.) gained information that led them to believe that the debtor might sell its business, so they offered more favorable purchase terms and halved the debtor’s line of credit. National Fish then made three transfers to Northern Ocean for more than $56,000.

In an adversary proceeding brought by Chapter 7 trustee John O. Desmond, Northern Ocean argued that §547(c)(2)(A) of the Bankruptcy Code exempted the transfers from recovery because they were made in the ordinary course of business.

Judge Christopher A. Panos granted the trustee’s motion for summary judgment, finding that the vendor’s actions were made in response to bad credit reports and rumors of a sale, so the three transfers were made outside the ordinary course of dealings between the parties.

Pierce Atwood bankruptcy and creditor/debtor rights attorney Alex F. Mattera noted that “disputes over allegedly preferential transfers during the period leading up to a bankruptcy filing usually settle, given how fact-specific they are and the subjective nature of the standard applied by the court in determining if a transfer occurred in the ordinary course of business,” adding that, “it is rare to get a written decision in a case like National Fish.”

“It costs money to develop cases and try them, and that eats into the recovery,” he said. “This really mitigates toward settlement. … so I would say this is a hugely helpful case to the bar [because] there’s not a lot of caselaw, especially in our district, on what constitutes the ordinary course.”

The complete article by Eric Berkman can be found online in the April 11, 2024 issue of Massachusetts Lawyers Weekly.

Alex Mattera focuses his practice on all aspects of commercial bankruptcy, bankruptcy litigation, insolvency, business reorganization, and creditor and debtor rights. His representation includes secured creditors, with an emphasis on workouts and collection of troubled and defaulted loans, as well as creditors' committees, trustees, debtors, and other parties-in-interest in bankruptcy and related proceedings.