Doing business with a customer in the shadow of bankruptcy is risky.
A hallmark of bankruptcy law is equal treatment of similarly-situated creditors. The Bankruptcy Code frowns upon a debtor who, while insolvent, pays some creditors but not others in the run-up to bankruptcy – whether voluntarily or due to pressure. Under the Bankruptcy Code, payments by an insolvent debtor to creditors in the 90 days before bankruptcy, on account of an antecedent debt, are presumptively avoidable. That means if you get one of these “preference payments,” you may be forced to return it.
There are, however, defenses to a preference payment, one of which is the “ordinary course of business” defense. A recent decision from a bankruptcy…
