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When the 90-day Preference Period is not 90 Days

It's generally known that Bankruptcy Code section 547(b)(4)(A) provides that for non-insider creditors, a preferential transfer is one made "on or within 90 days before the date of the filing of the petition."  The calculation of the 90-day "preference period" is typically a simple process involving counting backwards from the petition date itself, but not including the petition date itself as the first day.  However, depending on the interplay of Section 547(b)(4)(A) and Bankruptcy Rule 9006, the preference period might be as many as 93 days.

An examination of this interplay recently occurred in a case heard by the United States Bankruptcy Court for the Southern District of New York.  In In re Jesup & Lamont, Inc. and Jesup & Lamont Securities Corp., the court was called upon to rule on a liquidating trustee's motion for summary judgment on preference and other claims, and a defendant's motion to dismiss those claims.

The defendant's motion to dismiss the preference claim was based on the fact that the debtor had filed its bankruptcy petition on September 24, 2010, which was either 91 or 92 calendar days after the transfer took place on June 25, depending on whether the petition date is counted.  The defendant argued that the transfer was accordingly outside the preference period for a non-insider.

The court based its ruling on the application of Bankruptcy Rule 9006, which provides, in pertinent part:

(a)            Computing Time

The following rules apply in computing any time period specified in these rules, in the Federal Rules of Civil Procedure, in any local rule or court order, or in any statute that does not specify a method of computing time.

(1)            Period Stated in Days or a Longer Unit.  When the period is stated in days or a longer unit of time:

(A)      exclude the day of event that triggers the period;

(B)       count every day, including intermediate Saturdays, Sundays, and legal holidays; and

(C)       include the last day of the period, but if the last day is a Saturday, Sunday or legal holiday, the period continues to run until the end of the next day that is not a Saturday, Sunday, or legal holiday.

Fed. R. Bankr. P. 9006 (emphasis added).

In its reasoning, the court stated that if Bankruptcy Rule 9006 is applied as written, the challenged transfer took place within the 90-day look-back period of Bankruptcy Code section 547(b), as the petition was filed on September 24, 2010, and the 90th calendar day earlier (not counting the date of the Chapter 11 petition) fell on Saturday, June 26, 2010.  The court concluded that under Rule 9006(a)(1)(C) the period would continue to run until the end of the following week day counting backward, which was Friday, June 25th.  The court reasoned that if Bankruptcy Rule 9006 is simply ignored, the June 24 transfer took place either 91 or 92 calendar days before the petition date, depending on whether the date of the petition is counted.

The court also noted that the preference statute does not specify that "calendar days" be used in the calculation of the look-back period; rather Section 547(b)(4) refers only to "days," and provides no method of calculation.  Further, the court pointed out that Rule 9006 instructs the court and the parties as to how to count days where a statute does not provide a method.  The New York bankruptcy court found this to be a critical factor that establishes that Rule 9006 should be applied as written to the preference statute, including when the preference statute requires counting backward.

In essence, the court determined that the time computation periods set forth in Bankruptcy Rule 9006 apply whether the relevant time period is calculated going forwards or backwards.  Accordingly, if when counting backwards the 90th day of a preference period falls on a Monday federal holiday, the preference period is extended back to the previous Friday, and would include transfers that took place as many as 93 days prior to the bankruptcy petition date.