Covering Business Credit Logo Home   About Us   Services   Credit Articles   Q&A   Contact  

 
  Business Credit Articles  


Considering the Industry Standard of the Ordinary Course of Business Preference Defense
By Bradley D. Blakeley

Thousands of vendors around the country find themselves, like ABX Enterprises, Inc. (ABX), defending preference actions brought by debtors, trustees and plan administrators in Delaware. Some vendors are in the unfortunate position of having the ordinary course of business exception as their sole defense. As ABX and the Debtors' plan administrator have found, to successfully assert or defeat an ordinary course defense in a motion for summary judgment, a party must introduce evidence of those practices in which firms generally similar to the debtor and defendant engage.

In In re APS Holding Corporation, 282 B.R. 795 (3rd Cir. 2002), the U.S. Bankruptcy Court denied cross-motions for summary judgment on APX's ordinary course of business defense. The Court found that the parties' failed to introduce evidence of the industry standard. The Court also ruled that ambiguities existed as to whether the alleged preferential transfers were made in the ordinary course of business between APX and the Debtors.

The Plan Administrator introduced the Debtors' employee's testimony that the Debtors customarily paid their shippers by company check within ten days of the date of invoicing. The Plan Administrator asserted that such testimony evidenced the alleged preferential transfers were not ordinary in relation to industry standards. The Court found, however, that the argument was unpersuasive. The Court agreed that the testimony may be relevant as to industry standards, but is not determinative.

Instead, the Court held that the industry standard must be established not only by evidence of those practices in which the Debtors engage with their own shippers, but also evidence of those practices in which firms generally similar to the Debtors and APX engage citing to the Ninth Circuit case of In re Kaypro, 218 F.3d 1070, 1073-1074 (9th Cir. 2000). Both vendor and prosecutor alike, must be mindful of their responsibility to introduce evidence of the practices in which firms generally similar to the debtor and defendant engage to successfully assert or defeat an ordinary course defense.

Reprinted by permission from The Trade Vendor Quarterly Blakeley & Blakeley LLP Winter 02

 
Share |
 

Business Credit Articles
Send to a Friend
Ask A Credit Question
Questions & Answers
Business Credit News
Your Privacy
Site Map