Introduction

In a recent opinion issued by the Honorable Kevin Gross of the United States Bankruptcy Court, District of Delaware,  the Court addressed the issue of whether a debtor was solvent when it made allegedly preferential transfers to the Defendant.  The Court’s decision provides a helpful analysis of the less frequent "solvency" defense to a preference action.  Further, the decision provides guidance regarding the evidentiary issues that arise when a party raises this defense.

Background

The Court issued its decision in Miller v. Barenberg, et al. (In re Bernard Technologies, Inc.), Adv. No. 06-51017(KG), slip op. (Bankr.D.Del. Dec. 5, 2008).  In Bernard Technologies,  George Miller, the chapter 7 Trustee and plaintiff, sought to recover pre-petition transfers paid to Bernard’s former CEO, Dr. Sumner Barenberg (the "Defendant").  As an alleged "insider," the Trustee sought to recover transfers made to the Defendant during the one year prior to Bernard Technologies (the "Debtor") filing for bankruptcy.  One of the defenses raised by the Defendant was that the Debtor was solvent during both the 90 day preference period, as well as the one year preference period applied to insiders.

Continue Reading Using the Solvency Defense in a Preference Action: In re Bernard Technologies