City of Detroit Bankruptcy Preference Claims: Creditor Options

City of Detroit Bankruptcy Preference Claims: Creditor Options

By Adam D. Bruski

Lambert Leser, Attorneys at Law

The City of Detroit recently announced that as part of its emergence from bankruptcy, it was initiating approximately $50 million worth of preferential claim litigation against nearly 200 companies which had been paid money by the City in the 90 days prior to the start of its bankruptcy case.  The restructuring professionals at Lambert Leser have been involved in the Detroit case since the beginning and created this quick update for companies who may have received or will receive notice that they are named in one of these lawsuits.

Preference claims such as the ones initiated by the City of Detroit are allowed under the Bankruptcy Code as a way for debtors to bring money back into the bankruptcy estate from certain creditors and have it utilized per the terms of the debtor’s plan of reorganization.  While this can be good news for certain creditors it can come as a distinct shock to others that find themselves on the receiving end of a lawsuit.  This is especially true when the creditor may have already lost a substantial amount of money in the bankruptcy case itself.

The creditors that can theoretically be named in such lawsuits are those that received payments from the debtor within the 90 days prior to the date on which the bankruptcy case was started.  In the case of the City of Detroit specifically, the case was started on July 18, 2013.  Therefore, any creditor who received a payment from the City on or after April 19, 2013 and until July 18, 2013 could possibly be named by the City as a defendant in one of these cases.

However, simply being named in one of these suits does not mean that you have to pay back the money received.  The Bankruptcy Code provides a number of defenses for creditors, which are regularly used to reduce or eliminate the amount of money a preference claim defendant pays to a debtor.

The attorneys at Lambert Leser have advised preference case defendants of all sizes on the best strategy for minimizing or eliminating their risk in the event of a lawsuit being filed against them.  In addition, we can assist you in structuring your relationships to minimize the preference threat in the first place when you are dealing with a financially unstable customer.

The list of the preference cases initiated by the City of Detroit so far is available to view on the Court’s docket provided at https://www.kccllc.net/detroit.

For further information, please contact Adam Bruski at abruski@lambertleser.com or any other attorney in our Bankruptcy, Insolvency, and Restructuring Group.

Every legal situation is different and requires specific consideration.  This article is intended to provide general information and should not be used as legal advice.