Commercial Bankruptcies: Preference Payments

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

 A preference occurs when a bankrupt debtor treats one creditor more favorably than another. For example, a debtor may choose to use all of its assets to pay off the entire debt owed to one creditor, leaving a other creditors unable to collect any money at all. A court will disallow a preference, if that payment is made for the benefit of a creditor, for a debt owed prior to the bankruptcy filing, if the payment is made while the debtor is insolvent and the transfer is made within ninety days of the debtor’s filing the bankruptcy petition (or one year, if the payment was made to an insider such as a relative or corporate director). In such a situation, a creditor receiving a preference may be forced to restore it to the debtor’s estate. However, as a general rule, creditors only need to show the payment was made in the ordinary of course of doing business, in order to avoid having to pay back any monies to a trustee or debtor-in-possession.

In addition, the law bars the pursuit of a preference action by a debtor or trustee when the aggregate amount of the payments in question to a creditor is less than $5,000. Also, any attempts to recover amounts less than $10,000 from any one creditor, by a debtor or trustee, must be made in the District Court in the creditor’s jurisdiction rather than in the U.S. Bankruptcy Court where the case is being administrated.

Accuride Corp., an Evansville, In. manufacturer of aluminum wheels for commercial trucks, trailers and military vehicles, filed Chapter 11 in an effort to restructure its balance sheet. The filing, made in the U.S. Bankruptcy Court in Delaware with twenty affiliates, listed assets and liabilities of $682 million and $847 million respectively, as of the end of August. For further information contact the court in Wilmington, De. at 302-252-2560 and refer to case number 09-13449. 

Charter Communications Inc., the bankrupt St. Louis, Mo. cable operator, has changed its debt restructuring deal with its chairman that effectively gives it until 12/15 to exit bankruptcy proceedings.  The court has not yet ruled on the company’s reorganization plan.  For more information call the U.S. Bankruptcy Court for the Southern District of New York at 866-232-1268 and refer to case number 09-11435.

Greektown Casino-Hotel has seen a plan, that would allow control of the firm handed over to its largest creditor group, tentatively approved by the city of Detroit.  A hearing, to make the plan permanent, has been set for 11/3 by the court.  The casino, which originally filed last year, has more $772 million in debt. 

 Lear Corp., the Southfield, Mi. maker of automotive components, is reportedly in an arrangement with Citigroup Inc., J.P. Morgan Chase & Co. and UBS on a $400 million exit package that basically refinances a debtor-in-possession loan. It had earlier been thought that the loan would be in the range of $300 million.

Six Flags Inc., the Manhattan, N.Y. operator of theme parks, received approval from the U.S. Bankruptcy Court for its Six Flags New Orleans park to be taken over by Southern Star Amusements. Six Flags will pay the city of New Orleans $3 million and a fourth of any insurance proceeds over $65 million that it receives for damage stemming from Hurricane Katrina.

The Chicago Cubs major league baseball team, which is being purchased by the Ricketts family for $845 million, has filed Chapter 11 in the U.S. Bankruptcy Court in Delaware, as part of the purchase process.  The bankruptcy proceeding, made to protect the new owners from potential creditor claims, is expected to be a short one as the sale is being handled under Section 363 of the U.S. Bankruptcy Code.