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| vol 20, num 1 | April 2022 |
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| hhgregg and the Potential Impact of Payment Pressure on an Otherwise Airtight OCB Defense |
| Trade creditors will undoubtedly want to take steps to protect themselves when dealing with financially distressed customers that are potentially heading toward bankruptcy — such as by decreasing credit limits, tightening payment terms or otherwise ramping up collection efforts. However, those same steps may come with the unintended consequence of compromising a creditor’s ordinary-course-of-business defense in the event that the customer files bankruptcy and the creditor is sued for a preference claim. This catch-22 was recently exemplified by a January 2022 decision in the U.S. Bankruptcy Court for the Southern District of Indiana in an
adversary proceeding commenced in the chapter 11 cases of In re hhgregg Inc. Although the defendant-creditor had established, in connection with its ordinary-course-of-business defense, that the timing of the alleged preference payments was nearly identical to the timing of the payments made by the debtors prior to the 90-day preference period, the court ultimately held that the defendant had failed to “tip the scales in its favor,” largely because the creditor had increased its collection efforts during the period leading up to the debtors’ bankruptcy filing. |
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| In re Décor Holdings, Inc.: A Roadmap for the Ordinary-Course-of-Business Defense |
| Section 547(c)(2)(A) of the Bankruptcy Code, often referred to as the “subjective OCB defense,” provides a defense to a preference suit if the defendant can show that the challenged payments made during the 90-day preference period are sufficiently consistent with the historical payments made by the debtor to the defendant. The inherently subjective nature of the defense has given rise to myriad methodologies that parties can rely on to establish what may or may not be considered “ordinary.” These methodologies focus on many data points, including, but not limited to, (1) the proper historical/testing period duration, (2) whether
outliers should be removed, (3) whether the pre-preference and preference period averages are consistent, and (4) the proper way to calculate the OCB range (i.e., total range (high/low), standard deviation, buckets, etc.). |
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| Announcing Our Committee's Panel at the Annual Spring Meeting! |
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| ABI is pleased to announce the in-person return of the Annual Spring Meeting. Always one of the most significant annual gatherings of bankruptcy and insolvency professionals in the country, ABI's Annual Spring Meeting provides the ultimate in learning and networking opportunities for the insolvency community — both in person and online.
The Unsecured Trade Creditors Committee will be partnering with the Young & New Members Committee for a panel titled, "Reconsidering Value Allocation: Tools for Junior Stakeholders." This panel will discuss how § 506(c) and 552(b) waivers have become a staple in the pre-petition-lender-turned-DIP-lender toolbox. But what are the unsecured creditor’s tools for pushing back, and the arguments for why value that accrued post-petition might properly be reserved for junior creditors? Apart from collateral battles, this panel will explore the types of securities or other considerations that some plans have distributed to the class junior to the fulcrum security in acknowledgment of the potential asset appreciation not fully realized at the time of plan negotiation, as well as the ABI Commission’s recommendation to implement a
“Redemption Option Value” — and the challenges that such structures pose.
Speakers for this panel include:
- James Millstein, Guggenheim Securities; New York
- Hon. Michelle Harner, U.S. Bankruptcy Court (D. Md.); Baltimore
- Omar Alaniz, Reed Smith LLP; Dallas
- Jeannie Kim, Sheppard Mullin; San Francisco
- Susan Poll Klaessy, Foley & Lardner LLP; Chicago
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