Essentially, in order to prevail under the ordinary course of business defense, the creditor must show that the transaction at issue was customary between the parties and that the interval between the rendering of services or providing the goods and payment was also customary. Under the old bankruptcy rules, the creditor also was required to establish that the ordinary course of dealings was also common in the creditor's industry, thus requiring a creditor to present expert testimony to establish the industry standard. Under the Act, creditors are no longer required to prove this element. The impact of this change is that it will eliminate a significant amount of litigation involving the ordinary course of business defense and should make it easier for creditors to establish this defense against a preference action.
A second affirmative defense available to creditors is the Asimultaneous exchange of new value defense. Under this defense, a transfer is not deemed to be preferential if the alleged preferential payments were given in exchange for a simultaneous or near simultaneous rendering of services or delivery of goods. An example of a transaction which would qualify under this defense would be a COD purchase.
Another affirmative defense available to creditors is the defense for Asubsequent new value. To establish this defense, a creditor must prove it rendered services or delivered merchandise after receiving the alleged preferential payment and that it has not received payment for such merchandise or services. A creditor must deliver its unpaid invoices to the debtor after each such preferential payment is received in order to avoid a preference claim by the bankruptcy trustee.
If you have any questions concerning preference actions and the affirmative defenses available to creditors in such actions, please contact a member of the firm.