Article by Joseph Coleman published in The Credit and Financial Management Review

Defending Preferential Transfers: Don't Forget the "Other" Ordinary Course Defense - The Ordinary Business Terms Defense

By Joseph M. Coleman and Robert J. Taylor

ABSTRACT: When a creditor is faced with defending preferential transfer actions in a bankruptcy case, one of the least understood, and therefore least used, defenses is the so-called "ordinary business terms" defense described in Bankruptcy Code section 547(c)(2).1 Failure to be familiar with, and take advantage of, the ordinary business terms defense means a credit professional goes into battle lacking one weapon that might turn the tide in his or her favor.  The ordinary business terms defense is separate and distinct from the ordinary course of business defense that causes all of us to generate spreadsheets comparing the pre-preference period to the preference period in terms of timing, amount and manner of payment. Based upon our experience and our very unscientific and unrepresentative sampling of those regularly involved with preferential transfer litigation, the ordinary business terms defense is simply not meaningfully utilized as frequently as it should be. While ordinary course of business and new value defenses receive the predominant amount of attention, the ordinary business terms defense may be just as effective. The purpose of this article is to encourage suppliers to take full advantage of the ordinary business terms defense. (download full article)

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