Anathema to trade creditors. Under section 547(b) of the Bankruptcy Code, a DIP or a trustee may sue a recipient of certain payments it received from the debtor immediately before the beginning of the bankruptcy case, in order to avoid and recover those payments, which would then (in most cases) be distributed to unsecured creditors of the debtor. Under section 546(b), the DIP or trustee may avoid:

any transfer of property of the debtor

a) to or for the benefit of a creditor
b) for or on account of an antecedent debt
c) made while the debtor was insolvent
d) made within 90 days before filing or, if the transferee creditor was an insider, within one year before the beginning of the bankruptcy case
e) that enables such creditor to receive more than the creditor would receive in a chapter 7 liquidation.

There are defenses to avoidance and some are found in section 547(c) [e.g., new value, ordinary course of business].  Section 550 of the Bankruptcy Code empowers the DIP or trustee to recover the property transferred or its equivalent in money.

« Back to Glossary