SW Legal Educational Publishing

Industry Standards Primary Guide to Determine Preferential Transfers
Description Debtor construction company paid one supplier shortly before bankruptcy. Whether the payment was to be avoided as a preferential transfer would depend primarily on industry standards, not the ordinary course of business.
Topic Bankruptcy
Key Words Ordinary Course of Business, Preferential Transfer
C A S E   S U M M A R Y
Facts Florida Mining (FM) regularly sold concrete to A.W., a construction company. A.W. bounced a check to FM on March 5 to cover February deliveries, but made good on the check on March 10. On May 3, A.W. filed for bankruptcy. The "trustee filed a complaint in the bankruptcy court seeking to avoid the March 10 payment as a preferential transfer." Bankruptcy and district court held that "the transfer was made in the ordinary course of business between the parties and was not the result of extraordinary collection efforts." This exception depends "upon the debtor's internal operations and the circumstances of the transaction in question, not industry standards." Trustee appealed.
Court of Appeals Decision Reversed and remanded. The issue of whether the Trustee could avoid the disputed transfer "requires bankruptcy courts to consult industry standards in classifying a disputed transfer." This does not mean that the transfer may be avoided, but that the court will look to industry standards for primary guidance. Most circuits have held this to be the rule.
Citation A.W. & Associates, Inc. v. Florida Mining and Materials,, 1998 WL 115771 (11th Cir.)
or
136 F. 3d 1439 (11th Cir., 1998)

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