Charles A. Stanziale, Jr., is on a roll, filing preference actions in a number of cases within the Delaware Bankruptcy Court this month. As the Chapter 7 Trustee (the “Trustee”) for the bankruptcy estate of EP Liquidation, LLC f/k/a Equinox Payments, LLC (the “Debtor”), he filed approximately 37 complaints to recover what he contends are assets of the Debtor’s estate. These actions are made up of preference actions, fraudulent transfer and asset turnover cases. The Trustee filed these actions in the Delaware Bankruptcy Court and argued that the defendants hold assets belonging to the Debtor and that the payments received by various defendants are avoidable and subject to recovery under 11 U.S.C. § 547 and 548 of the United States Bankruptcy Code. This post will briefly cover the Debtor’s bankruptcy proceedings.
The Debtor was formed as HYI Acquisition, LLC to facilitate the purchase of the majority of assets owned by Hypercom Corporation, which was in the business of electronic payment solutions or the electronic point of sale business. The sale was considered to be a bargain purchase wherein the business was bought for less than the aggregate value of the assets.
The Debtor was a point-of-sale terminal manufacturer and in 2011, was reported to have the second largest terminal market base of installed terminals in the United States. However, the technology used by the Debtor in its products was scheduled to fall out of compliance with the Payment Card Industry Data Security Standard in 2014.
On February 6, 2014 the Debtor sold substantially all of its assets and business operations including certain equity ownership interests in SIA Equinox Payments Latvia and Netset Americos Centro Servicios, S. de R.L. de C. V, and the right to use its name to Brookfield Equinox, LLC pursuant to an Asset Purchase Agreement dated February 6, 2014. Included among the purchased Assets sold by the Debtor were all of the Debtor’s books and financial records (the “Sale”).
According to the last of the complaints filed by the Trustee, by the time the Trustee was appointed, the Debtor had run its bank accounts down to $4.06. On February 24, 2014, the Debtor filed its chapter 7 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware. The Trustee was appointed on February 24, 2014. As the statute of limitations on these actions is 2 years from the appointment of the Trustee, he was cutting it close when filing the last of these actions – four were filed on February 24, 2016.
The Trustee handled the liquidation of all the remaining assets of the Debtor and is tasked with prosecuting litigation intended to increase the assets available to distribute to the company’s creditors. This includes filing and prosecuting preference actions. The Debtor’s bankruptcy, as well as the preference actions, are before the Honorable Christopher S. Sontchi. The Trustee/Plaintiff prosecuting the preference actions is represented by the law firms Billion Law and Forman Holt Eliades & Youngman LLC.
Defenses to a Preference Action
Preference actions are a form of litigation specifically provided for by the Bankruptcy Code which are intended to recover payments made by the Debtor within the 90 days prior to declaring bankruptcy. The presumption is that the Debtor knew it was going to file bankruptcy, so any payments it made during this 90-day window went to friends and people it wanted to keep happy, and stiffed those the Debtor’s management didn’t like. Recognizing that these payments aren’t always made for inappropriate reasons, 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.”