_A preference is a transfer (usually a payment) that is made (1) by an insolvent company to or for the benefit of a party, (2) on account of an existing debt, (3) within 90 days (or a year, if the party receiving the transfer is an insider of the company) of the filing of the bankruptcy case, and (4) that allows the party to receive greater value than it would otherwise if the company making the transfer were liquidated. The idea is that it’s not fair for some parties to escape a bankruptcy unscathed (or less scathed) just because the company decided to “prefer” them over, or pay them instead of, other parties. The Bankruptcy Code allows the debtor or its representative (including a trustee or creditors’ committee) to recover those payments.

There are a variety of defenses to preference actions. For instance, a defendant’s liability may be significantly reduced or it may be able to convince the plaintiff to dismiss the preference action if (1) the debt was incurred and payment made in the ordinary course of business or financial affairs of the company and the defendant (the “ordinary course” defense), or (2) after the payment was made, the defendant provided goods or services to the company (the “new value” defense). The strength of a defendant’s defenses depends upon the facts of its particular case.

We zealously represent defendants in preference litigation. Although prior results do not guarantee a similar outcome for new clients, we have had substantial success in the preference defense arena. Over the past five years, we have represented dozens of preference defendants sued for a total of $6 million. On average, our preference defense clients have paid out less than 6% of the amount for which they were sued.