1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

78
1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences

Transcript of 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

Page 1: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

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Secured TransactionsAssignment 31

Trustees vs. Secureds: Preferences

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The Big Picture

Part Two: The Creditor Third Party Relationship

Chapter 9: Competitions for Collateral

Assignment 28: Lien Creditors vs Secureds: The Basics

Assignment 29: Lien Creditors vs Secureds: Future Advance

Assignment 31: Trustees vs Secureds: Preferences

Assignment 32: Secureds vs. Secureds: Basics

Assignment 36: Buyers vs. Secureds

Land, Fixtures, Agriculture, and Minerals

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The policies Petition

State: the raceof diligence

Bankruptcy: equality is equity

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The policies Petition

State: the raceof diligence

Bankruptcy: equality is equity

90 daypreference period

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The policies Petition

State: the raceof diligence

Bankruptcy: equality is equity

90 daypreference period

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The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

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The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

(1) To or for the benefit of a creditor

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The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

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The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

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The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

(4) Made --

(A) on or within 90 days before the date of the filing . . .

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The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

(4) Made --

(A) on or within 90 days before the date of the filing . . .

(B) between 90 days and one year before the date of the filing . . . if such creditor . . . was an insider, §101(31)

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The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

(4) Made --

(A) on or within 90 days before the date of the filing . . .

(B) between 90 days and one year before the date of the filing . . . if such creditor . . . was an insider, §101(31)

(5) That enables such creditor to receive more than such creditor would receive if the case were . . . under chapter 7 . . . [and] the transfer had not been made . . .

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The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

(4) Made --

(A) on or within 90 days before the date of the filing . . .

(B) between 90 days and one year before the date of the filing . . . if such creditor . . . was an insider, §101(31)

(5) That enables such creditor to receive more than such creditor would receive if the case were . . . under chapter 7 . . . [and] the transfer had not been made . . .

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§547(e) (2). A transfer is made –

(A) At the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after such time . . .

(B) At the time such transfer is perfected, if such transfer is perfected after such 30 days . . .

(1). For purposes of this section --

(A) A transfer of real property . . . is perfected when a bona fide purchaser . . . cannot acquire an interest that is superior . .

(B) A transfer of a fixture or property other than real property is perfected when a creditor . . . cannot acquire a judicial lien that is superior . . .

When is a security interest transfer made?

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

We represent the trustee in bankruptcy in a case filed under Chapter 11 on September 1 and converted to Chapter 7 on December 30.

Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

We represent the trustee in bankruptcy in a case filed under Chapter 11 on September 1 and converted to Chapter 7 on December 30.

We are deciding whether to attack transactions as preferences

Ch 11

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Problem 31.1, page 518

Ch 11

Sep 1

Convertto Ch 7

Dec 30

Now

We represent the trustee in bankruptcy in a case filed under Chapter 11 on September 1 and converted to Chapter 7 on December 30.

We are deciding whether to attack transactions as preferences

From what date does the preference period run?

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

NowCh 11Jun 3

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug15

SAFS

loan

a. Wooden borrows $300K secured from 1st Bank Aug 15.

Ch 11

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20

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug15

SAFS

loan

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day.

Aug16

FSfiled Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug15

SAFS

loan

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable?

Aug16

FSfiled Ch 11

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The Statute§547(b). The trustee may avoid any transfer of an interest of

the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

(4) Made --

(A) on or within 90 days before the date of the filing . . .

(B) between 90 days and one year before the date of the filing . . . if such creditor . . . was an insider, §101(31)

(5) That enables such creditor to receive more than such creditor would receive if the case were . . . under chapter 7 . . . [and] the transfer had not been made . . .

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The Statute§547(b). The trustee may avoid any transfer of an interest of

the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

(4) Made --

(A) on or within 90 days before the date of the filing . . .

(B) between 90 days and one year before the date of the filing . . . if such creditor . . . was an insider, §101(31)

(5) That enables such creditor to receive more than such creditor would receive if the case were . . . under chapter 7 . . . [and] the transfer had not been made . . .

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug15

SAFS

loan

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

Aug16

FSfiled Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7.

Feb 7

Unsecuredloan Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Jul 11

SAFS filed

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7. On July 11 Wooden granted a SI and Secondbank filed.

Feb 7

Unsecuredloan Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Jul 11

SAFS filed

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7. On July 11 Wooden granted a SI and Secondbank filed. When was transfer? §547(e)(2)(A).

Feb 7

Unsecuredloan Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Jul 11

SAFS filed

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7. On July 11 Wooden granted a SI and Secondbank filed. When was transfer? §547(e)(2)(A). Avoidable?

Feb 7

Unsecuredloan Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Jul 11

SAFS filed

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7. On July 11 Wooden granted a SI and Secondbank filed. When was transfer? §547(e)(2)(A). Avoidable? Yes.

Feb 7

Unsecuredloan Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7. On July 11 Wooden granted a SI and Secondbank filed. When was transfer? §547(e)(2)(A). Avoidable? Yes.

c. Wooden borrows $300K secured from 3rd Bank Feb 7.

Feb 7

SAFS

loan Ch 11

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Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Jul 11

FS filed

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7. On July 11 Wooden granted a SI and Secondbank filed. When was transfer? §547(e)(2)(A). Avoidable? Yes.

c. Wooden borrows $300K secured from 3rd Bank Feb 7. FS lost in mail, filed July 11.

Feb 7

SAFS

loan Ch 11

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32

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Jul 11

FS filed

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7. On July 11 Wooden granted a SI and Secondbank filed. When was transfer? §547(e)(2)(A). Avoidable? Yes.

c. Wooden borrows $300K secured from 3rd Bank Feb 7. FS lost in mail, filed July 11. Avoidable?

Feb 7

SAFS

loan Ch 11

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33

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Jul 11

FS filed

a. Wooden borrows $300K secured from 1st Bank Aug 15. 1st Bank files the next day. Avoidable? No, 547(e)(2).

b. Wooden borrows $300K from 2nd Bank unsecured Feb 7. On July 11 Wooden granted a SI and Secondbank filed. When was transfer? §547(e)(2)(A). Avoidable? Yes.

c. Wooden borrows $300K secured from 3rd Bank Feb 7. FS lost in mail, filed July 11. Avoidable? Yes. §547(e)(1)(B). (But see 9-516(a)!)

Feb 7

SAFS

loan Ch 11

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34

§547(e) (2). A transfer is made –

(A) At the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after such time . . .

(B) At the time such transfer is perfected, if such transfer is perfected after such 30 days . . .

(1). For purposes of this section --

(A) A transfer of real property . . . is perfected when a bona fide purchaser . . . cannot acquire an interest that is superior . .

(B) A transfer of a fixture or property other than real property is perfected when a creditor . . . cannot acquire a judicial lien that is superior . . .

When is a security interest transfer made?

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35

The Statute§547(b). The trustee may avoid any transfer of an interest of

the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

(4) Made --

(A) on or within 90 days before the date of the filing . . .

(B) between 90 days and one year before the date of the filing . . . if such creditor . . . was an insider, §101(31)

(5) That enables such creditor to receive more than such creditor would receive if the case were . . . under chapter 7 . . . [and] the transfer had not been made . . .

Page 36: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

36

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

d. Wooden borrows $30K purchase money secured from 4th Bank July 21.

Jul 21

SAFS

loan Ch 11

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37

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug 4

FS filed

d. Wooden borrows $30K purchase money secured from 4th Bank July 21. 4th Bank files August 4.

Jul 21

SAFS

loan Ch 11

Page 38: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

38

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug 4

FS filed

d. Wooden borrows $30K purchase money secured from 4th Bank July 21. 4th Bank files August 4. Avoidable?

Jul 21

SAFS

loan Ch 11

Page 39: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

547(3) Purchase Money Exception(c) (3) [Then] The trustee may not avoid under this section a transfer . . . that creates a security interest in property acquired by the debtor—

(A) to the extent such security interest secures new value that was—

(i) given at or after the signing of a security agreement that contains a description of such property as collateral;

(ii) given by or on behalf of the secured party under such agreement;

(iii) given to enable the debtor to acquire such property; and

(iv) in fact used by the debtor to acquire such property; and

(B) that is perfected on or before 30 days after the debtor receives possession of such property;

39

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40

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug 4

FS filed

d. Wooden borrows $30K purchase money secured from 4th Bank July 21. 4th Bank files August 4. Avoidable? No. §547(c)(3).

Jul 21

SAFS

loan Ch 11

Page 41: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

41

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug 4

FS filed

d. Wooden borrows $30K purchase money secured from 4th Bank July 21. 4th Bank files August 4. Avoidable? No. §547(c)(3).

e. Different if 4th Bank disbursed to Wooden and Wooden used other funds to purchase?

Jul 21

SAFS

loan Ch 11

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42

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug 4

FS filed

d. Wooden borrows $30K purchase money secured from 4th Bank July 21. 4th Bank files August 4. Avoidable? No. §547(c)(3).

e. Different if 4th Bank disbursed to Wooden and Wooden used other funds to purchase? Not PMSI. §547(c)(3)(A)(iv) “in fact used by the debtor to acquire such property.”

Jul 21

SAFS

loan Ch 11

Page 43: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

43

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Aug 4

FS filed

d. Wooden borrows $30K purchase money secured from 4th Bank July 21. 4th Bank files August 4. Avoidable? No. §547(c)(3).

e. Different if 4th Bank disbursed to Wooden and Wooden used other funds to purchase? Not PMSI. §547(c)(3)(A)(iv) “in fact used by the debtor to acquire such property.” Still no different. §547(e)(2)(A).

Jul 21

SAFS

loan Ch 11

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44

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

f. Elsa lends March 9.

Mar 9

Loan Ch 11

Page 45: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

45

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Apr 12

SAFS filed

f. Elsa lends March 9. SA signed and FS filed April 12.

Mar 9

Loan Ch 11

Page 46: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

46

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Apr 12

SAFS filed

f. Elsa lends March 9. SA signed and FS filed April 12. Avoidable?

Mar 9

Loan Ch 11

Page 47: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

47

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Apr 12

SAFS filed

f. Elsa lends March 9. SA signed and FS filed April 12. Avoidable? Yes. §101(31)(B)(vi) and (45).

Mar 9

Loan Ch 11

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48

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Apr 12

SAFS filed

f. Elsa lends March 9. SA signed and FS filed April 12. Avoidable? Yes. §101(31)(B)(vi) and (45).

When was the transfer made?

Mar 9

Loan Ch 11

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49

Problem 31.1, page 518

Sep 1

Convertto Ch 7

Dec 30

Now

Apr 12

SAFS filed

f. Elsa lends March 9. SA signed and FS filed April 12. Avoidable? Yes. §101(31)(B)(vi) and (45).

When was the transfer made? April 12. §547(e)(2)(B).

Mar 9

Loan Ch 11

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50

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict

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51

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict

FSFSFS

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52

Problem 31.2, page 519

Dysan

CreditorsFSFSFS

Judgment$1.5 millionverdict

Page 53: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

53

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

Page 54: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

54

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

The debtor is still in business. What should we do?

Page 55: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

55

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

The debtor is still in business. What should we do? Levy?

Page 56: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

56

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

The debtor is still in business. What should we do? Levy?

File an involuntary bankruptcy?

Page 57: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

57

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

The debtor is still in business. What should we do? Levy?

File an involuntary bankruptcy? Accept a security interest?

Page 58: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

58

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

The debtor is still in business. What should we do? Levy?

File an involuntary bankruptcy? Accept a security interest?

Deal: Preferred creditors assign us our prorata share of their claims.

Page 59: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

59

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

The debtor is still in business. What should we do? Levy?

File an involuntary bankruptcy? Accept a security interest?

Deal: Preferred creditors assign us our prorata share of their claims.

Example: Assets are $1 million. Debt is $4 million. FS debt is $2 million.

Page 60: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

60

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

The debtor is still in business. What should we do? Levy?

File an involuntary bankruptcy? Accept a security interest?

Deal: Preferred creditors assign us our prorata share of their claims.

Example: Assets are $1 million. Debt is $4 million. FS debt is $2 million.

Deal: We get this fraction of the assets: $1,547/$3,547

Page 61: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

61

Problem 31.2, page 519

Dysan

Creditors

$1.5 millionverdict Now

FSFSFS

90 days

Judgment

The debtor is still in business. What should we do? Levy?

File an involuntary bankruptcy? Accept a security interest?

Deal: Preferred creditors assign us our prorata share of their claims.

Example: Assets are $1 million. Debt is $4 million. FS debt is $2 million.

Deal: We get this fraction of the assets: $1,547/$3,547

If others figure it out, we cut them in.

Page 62: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

62

The Statute§547(b). The trustee may avoid any transfer (§101(54)) of an

interest of the debtor in property

(1) To or for the benefit of a creditor

(2) For or on account of an antecedent debt . . .

(3) Made while the debtor is insolvent, §101(32)

(4) Made --

(A) on or within 90 days before the date of the filing . . .

(B) between 90 days and one year before the date of the filing . . . if such creditor . . . was an insider, §101(31)

(5) That enables such creditor to receive more than such creditor would receive if the case were . . . under chapter 7 . . . [and] the transfer had not been made . . .

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63

Problem 31.3, page 519

2.5M1.2M

90 days before

1.3M

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64

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before Bankruptcy

800K

1.3M

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65

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3MDid Swissbank

receive an avoidable preference?

Bankruptcy

Page 66: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

66

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3M

The trustee may avoid any transfer1. To a creditor on account of an antecedent debt2. Made while debtor was insolvent3. Made within 90 days before the petition4. That enables the creditor to receive more than it would if

debtor didn’t make the transfer but filed chapter 7.

Did Swissbank receive an avoidable preference?

Bankruptcy

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67

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3M

The trustee may avoid any transfer. What is the “transfer?”1. To a creditor on account of an antecedent debt2. Made while debtor was insolvent3. Made within 90 days before the petition4. That enables the creditor to receive more than it would if

debtor didn’t make the transfer but filed chapter 7.

Did Swissbank receive an avoidable preference?

Bankruptcy

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68

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3M

The trustee may avoid any transfer1. To a creditor on account of an antecedent debt2. Made while debtor was insolvent3. Made within 90 days before the petition4. That enables the creditor to receive more than it would if

debtor didn’t make the transfer but filed chapter 7.

Did Swissbank receive an avoidable preference?

Payments and security interests in inventory items §547(e)(3) Bankruptcy

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69

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3M

§547(c)(5). “The trustee may not avoid . . . a transfer . . . that creates a perfected security interest in inventory or a receivable . . . except to the extent that the aggregate of all such transfers . . . caused a reduction, as of the date of filing . . . of any amount by which the debt secured . . . exceeded the value of all security interests . . . 90 days before the filing of the petition.”

Did Swissbank receive an avoidable preference?

Bankruptcy

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70

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3M

§547(c)(5). “The trustee may not avoid . . . a transfer . . . that creates a perfected security interest in inventory or a receivable . . . except to the extent that the aggregate of all such transfers . . . caused a reduction, as of the date of filing . . . of any amount by which the debt secured . . . exceeded the value of all security interests . . . 90 days before the filing of the petition.”

Did Swissbank receive an avoidable preference?

Bankruptcy

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71

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3M

§547(c)(5). “The trustee may not avoid . . . a transfer . . . that creates a perfected security interest in inventory or a receivable . . . except to the extent that the aggregate of all such transfers . . . caused a reduction, as of the date of filing . . . of any amount by which the debt secured . . . exceeded the value of all security interests . . . 90 days before the filing of the petition.”

Did Swissbank receive an avoidable preference?

Bankruptcy

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72

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3M

§547(c)(5). “The trustee may not avoid . . . a transfer . . . that creates a perfected security interest in inventory or a receivable . . . except to the extent that the aggregate of all such transfers . . . caused a reduction, as of the date of filing . . . of any amount by which the debt secured . . . exceeded the value of all security interests . . . 90 days before the filing of the petition.”

Did Swissbank receive an avoidable preference?

Bankruptcy

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73

Problem 31.3, page 519

2.5M1.2M

1.5M700K

90 days before

800K

1.3M

§547(c)(5). “The trustee may not avoid . . . a transfer . . . that creates a perfected security interest in inventory or a receivable . . . except to the extent that the aggregate of all such transfers . . . caused a reduction, as of the date of filing . . . of any amount by which the debt secured . . . exceeded the value of all security interests . . . 90 days before the filing of the petition.” $500K

Did Swissbank receive an avoidable preference?

Bankruptcy

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74

Problem 31.4, page 5191. Our law firm settles a class action for $247 million to the

class and $33 million to our firm.

2. The defendant pays by check.

3. We deposit the check.

4. The check clears.

Is it time to celebrate?

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75

Problem 31.4, page 5191. Our law firm settles a class action for $247 million to the

class and $33 million to our firm.

2. The defendant pays by check.

3. We deposit the check.

4. The check clears.

Is it time to celebrate? No.

Page 76: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

76

Problem 31.4, page 5191. Our law firm settles a class action for $247 million to the

class and $33 million to our firm.

2. The defendant pays by check.

3. We deposit the check.

4. The check clears.

Is it time to celebrate? No.

When will it be time to celebrate?

Page 77: 1 Secured Transactions Assignment 31 Trustees vs. Secureds: Preferences.

77

Problem 31.4, page 5191. Our law firm settles a class action for $247 million to the

class and $33 million to our firm.

2. The defendant pays by check.

3. We deposit the check.

4. The check clears.

Is it time to celebrate? No.

When will it be time to celebrate? 90 days after the check clears.

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78

Problem 31.5, page 5191. Bowers story. Bowers solution: let debtors distribute

their estates

2. Modern Chapter 11 preference avoidance

a. Preferences recovered before plan confirmation go to unsecured creditors

b. Strategy: confirm plan first, then recover preferences

c. Thousands of preference actions in a single case

3. Madoff and other Ponzi schemes

4. Should preference avoidance be abolished?

5. Congress responded in 2005 with a $5,850 minimum. §547(c)(9)