In re Longview Aluminum, LLC, 10-2780 (7th Cir. 2011), the Seventh Circuit Court of Appeals held that members of an LLC are insiders for preferential transfer purposes under the Bankruptcy Code.
Trustee makes demand for return of funds paid within 90 days of Petition: potential defenses available to your company. Some important defenses are:
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Substantially Contemporaneous Exchange. This is a flexible concept calling for a case by case inquiry. For example, one case held that a lien granted in exchange for a loan may be substantially contemporaneous even though the lien was not perfected for 16 days.
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Ordinary Course of Business. This is probably the most useful defense. If the payments are received in the ordinary course of business, the trustee cannot require repayment. Although the term ordinary course of business is not defined in the Bankruptcy Code, case law is reasonably clear as to its meaning. Determination as to ordinary course generally requires an analysis of the credit relationship between the parties for an extended period.
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Subsequent Advance Rule. Another useful defense is the subsequent advance of unsecured credit following receipt of the payment. In situations where there is an ongoing credit relationship, the analysis as to deliveries and application of payments can be quite complicated. Some cases require the subsequent advance to remain unpaid while others do not. The subsequent advance rule applies to both goods and services.
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Small Transfers. In business cases, transfers of an aggregate value of less than $5,475.00 cannot be recovered.
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Delivery of Goods Within 20 Days of Bankruptcy. Unpaid deliveries of goods within 20 days are entitled to payment as administrative (higher priority) claims. Creditors should always assert these claims as soon as they learn of the bankruptcy filing. However, in some cases where that has not been done, it may not be too late to do so toward the end of the case when the preference demand is received.