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February 16, 2018, Delaware – Defendant All American Poly is a producer of custom plastic products such as sheeting, stretch wrap, liners, and bags and provided goods to two of the Debtor FBI Wind Down, Inc.s’ subsidiaries, Lane and Broyhill, for use in their businesses. Lane Debtors conducted business as a subsidiary in Mississippi, and Broyhill conducted its business as a subsidiary in North Carolina. Lane and Broyhill further had separate payment procedures and lines of credit with All American Poly. Before the ninety days preceding the petition date, Lane and BroyHill made certain payments to All American Poly. As the Debtors began facing cash flow problems in 2013, FBI Debtors’ corporate group began delaying payments to vendors, including All American Poly and ultimately filed for bankruptcy.
The liquidating trustee brought a complaint to avoid and recover eighteen disputed transfers made to All American Poly by Lane and BroyHill. All the alleged transfers occurred between within the preference period. In acknowledging that the transfers were deposited and transferred from a bank account in the name of Lane and Broyhill, the liquidating trustee made a presumptive showing that the transfers were the property of the Lane and Broyhill Debtors’ estates. The Defendant countered that Lane and Broyhill did not have an interest in the transfers because “FBI Debtors … had ultimate control over the funds in the master account, and by extension, the funds in the bank accounts of the Lane and Broyhill Debtors. In support of this view, Defendant pointed to FBI Debtors’ approval process, ability to delay payments, and control over actual disbursement.
The Defendant stated that claims to the legal title to the disbursement accounts were irrelevant since only approved payments from the master account were transferred to the Lane and Broyhill disbursement accounts, and neither brand could alter the disbursement account payments to vendors once approved.
The Court found that the Defendant did demonstrate that a dispute of material fact exists as to whether FBI Debtors’ other indicia of control was enough to shift the property interest away from Lane and Broyhill Debtors.
Since, the level of control enjoyed by FBI over the disbursement accounts at issue left open the possibility of overcoming the presumption, the Court did not grant the summary judgment in favor of the trustee.
Next, the trustee satisfied all of the remaining elements of a preferential transfer. However, with respect to the § 547(c) ordinary course of business defense, again a dispute of material fact existed as to whether certain payments were in the ordinary course because they showed unusual collection practices, payment methods, and advantage taken by the creditor, but with similar payment timings when compared to the historical period.