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ARTICLE · 10 OCTOBER 2013

Financial Institution Payments: When Is A Preference Not A Preference?

Pepper Hamilton LLP
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Shortly before filing bankruptcy, the debtor made a ~$376 million payment to a financial institution in its capacity as trustee for a group of noteholders in order to repurchase the notes.

United StatesInsolvency/Bankruptcy/Re-Structuring
Vicki Harding
Vicki Harding

Official Comm. of Unsecured Creditors of Quebecor World (USA) Inc. v. American United Life Ins. Co. (In re Quebecor World (USA) Inc.), 719 F.3d 94 (2d Cir. 2013) –

Shortly before filing bankruptcy, the debtor made a ~$376 million payment to a financial institution in its capacity as trustee for a group of noteholders in order to repurchase the notes.  Normally the payment could have been avoided as a preference.  The question for the 2dnd Circuit was whether the payment came within one of the safe harbors in Section 546(e) of the Bankruptcy Code.

As a general matter, a payment (1) to or for the benefit of a creditor (2) on account of an antecedent debt (3) made while the debtor was insolvent and (4) within 90 days before the bankruptcy is filed that (5) allows the creditor to receive more than it would receive in a chapter 7 liquidation can be avoided as a preference under Section 547 of the Bankruptcy Code (subject to certain defenses – for example, transfers for

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