Preference claims are the ultimate thorn in the side of a trade creditor dealing with a customer that files for bankruptcy or is heading toward a potential bankruptcy filing. Collecting outstanding invoices is difficult enough in these circumstances—the risk of having to return payments a creditor has managed to collect in the months before a bankruptcy filing is, simply adding insult to injury.
Defending a preference claim starts with rebutting one or more of the elements that a plaintiff must prove to recover an alleged preference. However, this is frequently an uphill battle because of the advantages that make it easier to prove a preference claim. A recent decision from the Colorado bankruptcy court in the Chapter 11 case of Sklar Exploration Company, LLC is a great reminder of this. The Sklar Exploration decision
shows how important it is for creditors to be armed with sufficient evidence if they intend to rebut the insolvency and “greater- than-Chapter 7 recovery” elements of a preference claim, and for creditors to also conduct the necessary fact investigation to prove any potential affirmative defenses.