Preference Payments Made Per Historical Practice Still Not Ordinary

Faegre Drinker co-chair Andrew Kassner and counsel Joseph Argentina coauthored an article for The Legal Intelligencer, titled “Preference Payments Made Per Historical Practice Still Not Ordinary,” that addresses the risk of nonpayment that comes with doing business with distressed customers.

The authors explain how the Bankruptcy Code protects regular, ordinary commercial transactions between distressed companies and vendors willing to continue the relationship; however, they note that the courts have wrestled with the question of “what is ordinary?” for decades.

In a recent decision of the U.S. Bankruptcy Court for the Southern District of Indiana in the Chapter 11 case In re HHGregg, a supplier whose invoices were paid consistent with payment terms was nevertheless held liable for $3,517,805.06 plus prejudgment interest as a preference. The article summarizes the case and highlights that the decision demonstrates the fact-intensive nature of the inquiry and the difficult line the supplier must walk between keeping the credit risk acceptable and the relationship “ordinary” for bankruptcy preference purposes.