On September 13th, the Liquidating Trustee (the “Trustee”) in the Graceway Pharmaceuticals (“Graceway”) bankruptcy filed preference complaints against approximately 25 different defendants. The Trustee is seeking to avoid and recover what he contends are avoidable preferences under section 547 of the United States Bankruptcy Code.

Graceway filed chapter 11 petitions for bankruptcy on September 27, 2011.  The company’s origins date back to 2006 when it acquired portions of a pharmaceutical business from 3M.  Through the purchase, Graceway became what it described as a leader in the specialty pharmaceuticals market.  By 2008, the company’s net sales rose to over $340 million and continued to rise through 2009.  In 2010, Graceway began experiencing declining sales and net revenues.  The company attributed its poor performance to the recession and unfavorable patent litigation.

Going in to bankruptcy, Graceway planned to sell substantially all of its assets pursuant to section 363 of the Bankruptcy Code.  Once in bankruptcy, the Delaware Bankruptcy Court confirmed Graceway’s Joint Plan of Liquidation (the “Liquidating Plan”).  Under the Plan, Graceway entered into a Liquidating Trust Agreement wherein the Trustee could liquidate assets and distribute the proceeds.  The Trustee is also responsible for pursuing avoidable preference claims.

The Graceway bankruptcy is before the Honorable Peter J. Walsh.  The law firm DLA Piper represents the Trustee and Plaintiff in the Graceway preference actions.

Defenses to a Preference Action

The Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”