1. Preferences
    1. Review the Elements.
      1. Does the transfer involve “an interest of the debtor in property?”
      2. Was the transfer made when the Debtor was “insolvent?” The 90-day period of Bankruptcy Code §547(f) is only a “presumption.”
      3. Does the transfer Allow the transferee to receive more than in Chapter 7?
    2. Review the Exceptions.
      1. Ordinary Course of Business. Bankruptcy Code § 547(c)(2). Sometimes “regular” late payments can meet the test. See James D. Gregg and Carrie Foster, “The Circuits Speak: The Ordinary Course of Business Defense Under Section 547(c)(2).” Presented at the American Bankruptcy Institute Annual Spring Meeting held at the Grand Hyatt in Washington, D.C. on April 10-13, 2003 and available on-line at:
        http://www.abiworld.org/abidata/online/conference/03asm/Gregg.html.

        An except related to the ordinary course of business standards in the Eighth Circuit are below:Harrah’s Tunica Corp. v. Meeks (In re Armstrong), 291 F.3d 517 (8th Cir. 2002). The disputed transfers in this case occurred when the creditor/casino received payment on $50,000 worth of markers it had previously issued to the debtor in exchange for gambling chips. The debtor had incurred the underlying gambling debts in an apparent attempt to save his failing Ponzi and embezzlement schemes.

        The court’s analysis focused on “whether or not the marker transaction was within the ‘ordinary course of business terms or financial affairs'” of the debtor and the creditor/casino under § 547(c)(2)(A). Answering this question in the negative, the court explained: “[w]e decline to hold that a desperate debtor’s irresponsible accumulation of gambling debts in an ill-fated attempt to cover fraud and embezzlement losses qualifies as the ordinary course of his business or financial affairs.”

        Official Plan Comm. v. Expeditors Int’l, Inc. (In re Gateway Pacific Corp.), 153 F.3d 915 (8th Cir. 1998). In this case, the court considered whether several late payments from the debtor to the creditor during the preference period had been “made in the ordinary course of business or financial affairs of the debtor and the transferee” as required by § 547(c)(2)(B).

        The court explained that “[t]here is no precise legal test which can be applied in determining whether payments by the debtor during the 90-day period were made in the ordinary course of business; rather the court must engage in a peculiarly factual analysis” (quoting Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 497 (8th Cir. 1991)) (internal quotation marks omitted). The “controlling factor” in the inquiry “is whether the transactions between the debtor and the creditor, both before and during the ninety-day period, were consistent” (citing Lovett, 931 F.2d at 497). “[T]he analysis focuses on the time within which the debtor ordinarily paid the creditor’s invoices, and whether the timing of the payments during the 90-day period reflected ‘some consistency’ with that practice” (quoting Lovett, 931 F.2d at 498).

        “[D]uring the time preceding the preferential period, as well as during the preferential period itself,” the court found that the debtor “consistently made tardy payments with company checks, paid the invoices in full, and was not penalized for its slow payments.” The court further noted that “[w]hen late payments were the standard course of dealing between the parties, they are also the ordinary course of business during the preference period.”

        The facts revealed, however, that, in the nine months preceding the preference period, “only nine of approximately 155 payments were more than fifty days” late, “while twenty-four of the twenty eight payments during the preference period were at least fifty or more days old.” Based on these facts, the court affirmed the bankruptcy court’s holding that “any payments made during the preference period that were at least fifty days old were not made within the ordinary course of business” and did not fall within the § 547(c)(2) exception.

        See also Jones Truck Lines, Inc. v. Full Serv. Leasing Corp., 83 F.3d 253, 257 (8th Cir. 1996) (debtor who consistently paid rent the week it was due before the preference period, but who began to delay those rent payments by up to sixty days as its financial condition deteriorated, could not show that the late payments were part of “the parties’ usual course of dealing” so as to qualify for the ordinary course of business exception).

        Central Hardware Co. v. Sherwin-Williams Co. (In re Spirit Holding Co.), 153 F.3d 902 (8th Cir. 1998). The debtor in this case originally sent a check to the creditor in payment of outstanding invoices that conformed to the “ordinary financial dealings between the parties.” Upon discovering the creditor’s belief that it had not receive the check, the debtor wired another payment to the creditor and stopped payment on the original check. The creditor claimed that the payment was made in the ordinary course of business and should not be avoided as preferential.

        Analyzing the payments under § 547(c)(2)(B), the court first explained that the absence of evidence of “unusual collection efforts by the creditor” did not, by itself, demonstrate that the transfer at issue was “ordinary.” Rather, the “‘cornerstone'” of this element of the ordinary course of business defense “‘is that the creditor needs [to] demonstrate some consistency with other business transactions between the debtor and the creditor.'” Based upon the parties’ past financial dealings, the court concluded that “it is clear that a wire transfer was not the ordinary means to respond to a normal invoice.” Thus, the “wire transfer [could not] qualify as a payment made in the ordinary course of business.”

        Jones v. United Sav. & Loan Assoc. (In re U.S.A. Inns, Inc.), 9 F.3d 680 (8th Cir. 1993). The court’s analysis in this case focused on § 547(c)(2)(C). Adopting the majority view (particularly as expressed in Tolona Pizza [Matter of Tolona Pizza Prods. Corp., 3 F.3d 1029 (7th Cir. 1993)]), the court held that subsection (c)(2)(C) required objective proof of industry standards. The court explained:

        Subsection (c)(2)(C) does not require a creditor to establish the existence of some uniform set of business terms within the industry in order to satisfy its burden. It requires evidence of a prevailing practice among similarly situated members of the industry facing the same or similar problems . . . . [W]e feel the focus of subsection (c)(2)(C) should be on whether the terms between the parties were particularly unusual in the relevant industry, and that evidence of a prevailing practice among similarly situated members of the industry facing the same or similar problems is sufficient to satisfy subsection (c)(2)(C)’s burden.

        Based upon testimony by the creditor’s President and CEO, who stated that approximately eight to ten percent of the creditor’s accounts “were on a similar pay schedule [as the debtor]” and that “working with delinquent customers as long as some type of payment was forthcoming was common industry practice [in the savings and loan industry],” the court found that “the terms on which [the creditor] dealt with [the debtor] were not so ‘idiosyncratic’ or ‘extraordinary’ as to fall outside the broad scope of subsection (c)(2)(C).” Thus, the court concluded that the payments at issue had been made within the “ordinary course of business.”

      2. Contemporaneous Exchange for New Value. Bankruptcy Code § 547(c)(1).
      3. Statutory Liens. Bankruptcy Code § 547(c)(6).
    3. Consider Statute of Limitations and Advisability of Tolling Agreements. Can sometimes give both parties an opportunity to resolve disputed issues in a more amicable and efficient manner.
    4. Consider Venue Transfer Motions for Out of State Matters. 28 U.S.C. § 1412 provides, “A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.” For an example of a typical analysis of this two-prong test, but not necessarily local or Eighth Circuit standards, see Appendix A – Enron Change of Venue Opinion. A few other cases on venue transfer standards are as follows:Matters of Local ConcernIn Re Pinehaven Assocs., 132 B.R. 982, 990 (Bankr. E.D.N.Y. 1991) (interest of justice requires “looking into the desirability of having a judge familiar with applicable law hear and determine issues arising in the case,” resolving “inevitable questions of [local state] law . . . with greater ease, familiarity, and thus efficiency,” and, “render[ing] accurate and proper decisions on these questions.”);In Re Harnischfeger Indus., Inc., 246 B.R. 421, 441 (N.D. Ala. 2000) (“The Supreme Court long ago recognized that courts generally prefer to decide matters of local interest.”).In Re Standard Tank Cleaning Corp., 133 B.R. 562, 567 (Bankr. E.D.N.Y. 1991) (favoring “a state’s interest in having local controversies decided within its borders”).Judicial EfficiencyIn Re Standard Tank Cleaning Corp., 133 B.R. at 568. (“It simply makes more sense from the standpoint of judicial administration to deal with a New Jersey debtor and its largely New Jersey creditors in a New Jersey forum”.Location of Witnesses and EvidenceIn Re Bruno’s, Inc., 227 B.R. 311, 330 (Bankr. N. D. Ala. 1998) (“Most of the material witnesses, the contracts which form the basis of this action . . . and documents produced prepetition are located in [requested state]. Further, any additional documents to be produced are likely to be located in [requested state]. Thus, none of the material or necessary proof for this actions appears to be located in [state].”
  2. Lien Avoidance
    1. Read Revised Article 9.
      1. Generic Descriptions in Financing Statements Are Not Necessarily Fatal. Compare Ark. Code Ann. § 4-9-108 with Ark. Code Ann. § 4-9-504(2). But see First National Bank of Lewisville v. Bank of Bradley, 80 Ark. App. ___, 96 S.W.3d 773 (2003) (citing Ark. Code Ann. § 4-9-108 as appropriate standard for sufficiency of financing statements).
      2. Transition Rules offer grace periods through June 30, 2006.
      3. Many collateral types can be perfected by possession or control, including the following: goods, equipment, inventory, instruments, documents, investment property, deposit accounts, tangible chattel paper, electronic chattel paper, letter-of-credit rights, certificated securities, and payment intangibles.
      4. The banking industry influenced changes to Revised Article 9. Some of Revised Article 9’s provisions were, in fact, drafted specifically to thwart bankruptcy trustee avoidance powers. E.g. security interest in a promissory note perfected by a financing statement will defeat a trustee even though the secured party does not have possess or control the instrument. See Ark. Code Ann.§ § 4-9-312(a), 9-317(a)(2), 9-322(a) & 9-330(d)).
    2. Perfect Vehicles and Rolling Stock by Title Notations. See In re Renaud (Rice v. Simmons First Bank of Searcy), 302 B. R. 280 (Bankr. E. D. Ark. 2003). Lenders taking security interests in certificate of title property that is inventory to a borrower need only file a UCC-1.
    3. Encourage Lenders to Do Spot Audits.