In Preference Defense: New Challenges Facing Creditors bankruptcy expert witness Dorman Wood writes:
At its inception, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was hailed as the most sweeping revision of the bankruptcy law in more than two decades.
While the majority of the revisions under BPACPA were aimed at individual bankruptcy reform, several touched on commercial bankruptcy reform.
One such revision was to §547(c)(2), which is commonly referred to as a creditor’s ‘ordinary course of business defense’ to a preference suit brought by a trustee, unsecured trade creditors committee or in some cases, a plan administrator. A creditor’s ordinary course of business defense’ pre-BAPCPA was required to meet a three-prong test to show that a payment received within the 90-day period prior to (and including) the bankruptcy petition date, was: 1) made upon a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and transferee, 2) made in the ordinary course of business or financial affairs of the parties, and 3) made according to ordinary business terms. Prongs 1 and 2 were referred to as the “subjective test” of the parties’ dealings. Prong 3 was referred to as the “objective test” of the standards observed in the relevant industry.
Dorman Wood is Managing Member, DORMAN WOOD Associates, LLC www.Witness4U.com