Preference recoveries, under Section 547 of the Bankruptcy Code, serve as a robust tool for bankruptcy trustees, debtors-in-possession, and liquidating trustees to garner additional funds into a bankruptcy estate. These allow for the recovery of payments made by a debtor to a creditor just before bankruptcy, providing the creditor an edge over others in a similar position.
The Small Business Reorganization Act of 2019 (SBRA) has added a layer of intricacy to preference litigation. It amended 11 U.S.C. § 547(b), incorporating a new due diligence requirement for plaintiffs filing preference lawsuits. The revised clause asserts that a trustee may, based on reasonable due diligence in the circumstances of the case and taking into account a party’s known or reasonably knowable affirmative defenses under subsection (c), avoid any transfer of an interest of the debtor in property.
The courts, however, have grappled with the interpretation of the 2019 amendment to Section 547. The pivotal point of contention revolves around whether the due diligence requirement is an integral element of a preference claim that must be adequately pleaded in the plaintiff’s complaint. As the law shapes up, there are three noteworthy takeaways for trustees to consider.
For detailed insights, legal professionals can review the original Law.com article.