Financially distressed businesses, especially in California, are increasingly using assignments for the benefit of creditors (ABCs) to liquidate their assets as an alternative to filing a chapter 7 bankruptcy. ABCs are more efficient, less costly, and minimize negative publicity for management. Recently, several courts considered whether the California preference statute, which gives a state assignee, but not creditors generally, the power to recover preferences, is preempted by the Bankruptcy Code. The decision to file for bankruptcy or to initiate ABC proceedings is predominantly a creditor concern. The decisions of the California Court of Appeals and the Ninth Circuit have substantial impact on creditors because a preemptiomst resolution to the debate at hand would result in a tradeo...
As the saying goes, "free advice is worth what you pay for it." That rings particularly true with respect to a plaintiff's counsel's pre-lawsuit letter demanding the return of an alleged preferential transfer, in the context of a federal bankruptcy proceeding or state law assignment for the benefit of creditors (ABC). In a typical demand letter, the plaintiff recites the elements of a preference as set forth in either Section 547(b) of Title 11 U.S.C. (the Bankruptcy Code), or the ABC statute. This article presents a checklist of defenses that rely on legal provisions that are either wholly or partially outside the scope of Sections 547(b) and (c). The checklist include: 1. statute of limitations, 2. jurisdictional defect due to insufficient dollar amount, 3. defendant secured at time o...
[...] in Part V, after considering whether Congress possibly could fix some of the problems by eliminating states' Eleventh Amendment immunity, I suggest that testing the limits that federal law imposes on privately enforceable laws through actual cases, while perhaps not the most efficient means of developing those limits, has some distinct advantages and, in any event, is hardly something new to our jurisprudence. A state agency that is told by a lower federal court judge (or judges) that it can ignore an antipreference law would follow that advice at its peril. [...] the best bet for a state agency who wishes to launch an effective challenge to an anti-preference law will be to wait to be sued in state court, and then to assert the challenge as a federal defense.
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