Creditors dealing with financially distressed customers face a difficult conundrum. Creditors may seek to protect against the risk of nonpayment by tightening payment terms, reducing credit limits, withholding shipments, or even sending simple follow-ups requesting payment of outstanding invoices. However, those very same actions that prompt a customer to pay outstanding invoices may jeopardize a creditor’s “ordinary course of business” defense in the event the customer files bankruptcy and a lawsuit is commenced to recover “preference” payments made to the creditor within the 90 days of the bankruptcy filing.
Courts have generally held that a creditor’s prepetition collection pressure negates its defense to preference liability based on the subjective prong of the ordinary course of business defense (that is, where the defense relies on the ordinary practices between the creditor and the debtor). But what if the ordinary course of business defense is based on industry terms? In an opinion issued in January 2025 in FI Liquidating Trust v. C.H. Robinson Company, Inc., the United States Bankruptcy Court for the District of Delaware (the preeminent district for large, commercial chapter 11 filings) held that a creditor did not prove the industry-based “objective” ordinary course of business defense because the alleged preference payments were induced by the creditor’s collection pressure. This decision appears to conflict with a decision by a different Delaware bankruptcy judge issued just five months earlier, in the Center City bankruptcy case. In that case, the court held that collection pressure is irrelevant to the objective ordinary course of business defense.
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