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In re CCG 1355, Inc., 276 B.R. 377 (D. N.J. 2002)

276 B.R. 377 (D. N.J. 2002)

BANKRUPTCY— A blanket advance payment made within the preference avoidance period preceding a bankruptcy is considered as payment for an antecedent debt if extracted to convince the supplier to sell goods to, or perform services for, the debtor.

An office furniture company filed for bankruptcy under Chapter 11. A construction company had picked up and delivered its products for about four years until just before the petition date. Within ninety days preceding the petition date, the office furniture company issued three checks in a little more than two weeks. The first two checks paid 12 invoices, each of which was at least 80 days old. The third check covered old bills and an advance payment for subsequent services. Testimony was presented by the trucking company that the only way its company could get the office furniture company’s business was by giving payment terms in the 60 to 90 day range. Their actual course of dealings was that the average invoice-to-payment interval in the first year was 68 days, in the second year was 54 days, in the third year was 60 days, and in the year prior to bankruptcy was 73 days. The average payment interval was 66 days over the four year period. Throughout the totality of the relationship between the trucking company and the office furniture company, only 66 of 409 payments were made against invoices which had aged 80 days or more. The last nine months before the preference period, 33 of 77 payments were for invoices that were 80 days or older. With that in mind, the trucking company argued that it had satisfied the requirement that the payments were “made according to ordinary business terms.” Its principal, with 20 years’ experience in the trucking industry, testified that “60 to 70 percent of industry payments are made in 60 days or less [and that] 20 to 25 percent of industry customers pay in the 60 to 90-day period.” The Court, after considering the testimony, concluded that the trucking company had not met its burden of proving its “ordinary course” defense. It found that the four-plus year course of dealing between the two companies belied the claim that 80 day and older payments were “usual” or “ordinary.” “The average invoice date to payment date interval in the preference period (89.50 days) significantly exceed[ed] the overall average for the four-year business relationship (66.47 days).” It was also more than 20% “later” than the average in the last full year of the relationship. Further, no testimony or argument was offered to establish that the payments for nine invoices older than 90 days was in the “ordinary course.”

As to the advance payment deal, the Court saw the specter of creditor pressure or debtor “fawning” during the preference period. Although there was no testimony offered to show either, and although the trucking company denied pressuring the office supply company, “nevertheless, payment of old invoices along with the Advance Payments [was] very questionable.” As to the advance payment, the Court needed to determine whether it were “substantially” contemporaneous with the services rendered. It examined the length of delay between the payment and the later shipments, and held that the advance payments “had been made to [the] carrier during the 90-day preference period, to convince [the] carrier to continue to ship merchandise to [the] debtor’s customers following an announcement” of the debtor’s financially stressed condition. Therefore it was on account of “antecedent debt” for preference purposes, even though the invoices predated the issuance of invoices by the carrier.


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