On June 17, 2022, Ronald J. Sommers, as Chapter 7 Trustee for the Estate of Magellan E & P Holdings, began filing adversary proceedings against certain creditors in the Bankruptcy Court for the Southern District of Texas.
According to our review of the Bankruptcy Case Docket, there were approximately 17 complaints filed on June 17, 2022.
These complaints seek to avoid and recover transfers made by the debtors as alleged preferential transfers.
The claims against the defendants in this matter include a preference claim.
The Bankruptcy Code requires the defendant (a person, corporation, or entity against whom the Trustee has lodged a complaint) to file an answer or response within 30 days of the Summons issue date. Failure to file a response may result in a default judgment against the defendant in the lawsuit amount.
A default judgment requires the defendant to refund the entire amount of the claim, and any claims the defendant may have against Magellan E & P Holdings, Inc. and its affiliates, if applicable, may be disallowed by the court, preventing you from pursuing them.
If your rights are in jeopardy and you have not yet retained counsel, you should do so immediately. Click here to contact us today for support.
Preferential Transfer Claim
Under section 547 of the Bankruptcy Code, preferential payments, also known as preferences, are payments made to creditors (a person or company to whom money is owing) before filing a bankruptcy case that result in the creditor receiving more than they would in the bankruptcy case.
In this case, the payments received by businesses from Magellan E & P Holdings, Inc. and its affiliates, if applicable, for a period of up to 90 days before filing for bankruptcy may be considered preference payments. As some creditors were paid in full while other creditors received no payment, this bankruptcy provision allows the Trustee to "clawback" these payments from its paid creditors to redistribute the money equally among all of its creditors.
There are some defenses that are typically applicable and could be used to protect the payments from being avoided and clawed back.
Defenses against preferential transfer.
Traditional Defense to a Preference Claim
The Trustee must prove all five elements of a preference under section 547. A traditional defense to the claim is to show that the Trustee cannot prove one of these elements. The five elements are:
- Payment made to or for the creditor's benefit
- There was an antecedent debt (a legally enforceable duty to repay someone with money or property that existed before the moment in question) payable to the creditor.
- The payment was made while the debtor was insolvent.
- If the creditor was an outsider (unrelated to the debtor in any way), then a payment that was made within 90 days before the petition, or if the creditor was an insider (someone who has a position in a business, family members, business partners, etc.), then payments made one year before the petition.
- More than the creditor would have received if the debtor's case was filed in chapter 7 (liquidation).
Statutory Defenses to a Preference Claim
Ordinary Course of Business – A determination of "ordinary course" entails examining the debtor's and creditor's business activities to demonstrate a consistency of transactions between the 90-day preference period and the base period. The ordinariness of the transactions is determined by various factors, the most important of which is the timing of the payments.
Subsequent New Value – Generally, if the defendant provided goods or services to the debtor after the first alleged preference payment (based on the precise date of the alleged payment) but before the petition date, any such new value may be protected from avoidance.
Contemporaneous Exchange for New Value – This affirmative defense requires that the alleged payment and the value delivered to the debtor were not only intended to be contemporaneous (happening at the same time or very close together) but also were, in fact, contemporaneous. If the defendant had any security interests or claims on the debtor's property, this defense might also apply.
Ordinary Business Terms – This defense is applied when the alleged payments were within the industry standard of lateness/timing of payments.
Our Mission is to Avoid Messy Litigation
Maggie founded her independent practice focused on representing unsecured creditors in bankruptcy preference and fraudulent conveyance actions with a vision to eliminate messy litigation by providing outstanding legal services to her clients with the highest levels of integrity, responsiveness, and efficiency.
As lead counsel, she has successfully defended avoidance and recovery actions for small businesses and multinational corporations representing both domestic and foreign clients. Maggie's legal services have resulted in the following:
- a dismissal rate of over 50% of all cases,
- an average settlement of 10% of the total claim amount for all cases, and
- an average settlement amount of 3% of the total claim amount for cases with a claim over $100,000.
Please peruse our website for more information and click here to set up a free consultation.
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