AMERICAN BANKRUPTCY INSTITUTE
TASK FORCE ON PREFERENCES
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Reporter
Charles J. Tabb
University of Illinois College of Law
Champaign, Illinois |
Chair
Joseph S.U. Bodoff
Hinckley, Allen & Snyder
Boston, Massachusetts |
| Members
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John W. Ames
Greenebaum, Doll & McDonald
Louisville, Kentucky
Eugene J. Chikowski
Becket & Watkins
Malvern, Pennsylvania
Stephen B. Darr
KPMG Peat Marwick, LLP
Boston, Massachusetts
Robert R. Dunn
The Finley Group, Inc.
Charlotte, North Carolina
Jay R. Indyke
Siegel, Sommers & Schwartz
New York, New York
Richard M. Meth
Friedman Siegelbaum LLP
Roseland, New Jersey
John D. Penn
Haynes and Boone, L.L.P.
Forth Worth, Texas
Sandra L. Schirmang
Kraft Foods, Inc.
Northfield, Illinois
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Scott E. Blakeley
Blakeley & Brinkman
Los Angeles, California
James A. Chisholm, Jr.
Zimmer, Inc.
Warsaw, Indiana
Michael W. Donovan
Donovan, Love & Twinney
Grand Rapids, Michigan
Robert M. Fishman
Ross and Hardies
Chicago, Illinois
James R. Jensen
Weyerhaeuser Company
Portland, Oregon
Paul F. McIntosh
Collins & Aikman
Spindale, North Carolina
Lisa M. Poulin
KPMG Peat Marwick, LLP
Dallas, Texas
Andrew J. Sutherland
Bank of America Illinois
Chicago, Illinois
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John E. Burke
Nestle USA, Inc.
Glendale, California
Loretta R. Cross
Coopers & Lybrand LLP
Houston, Texas
Donald H. Dreyer
Dreyer & Company, Inc.
Oakland, California
Douglas Fox
Rexroth Corporation
Lehigh Valley, Pennsylvania
Harvey R. Kelly
Price Waterhouse LLP
New York, New York
Bruce S. Nathan
Kreindler & Relkin, P.C.
New York, New York
Lloyd B. Sarakin
Sony Electronics, Inc.
Park Ridge, New Jersey
Judy D. Thompson
Poyner & Spruill, L.L.P.
Charlotte, North Carolina
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Ann van Bever
Preston, Gates & Ellis
Portland, Oregon
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Rodney B. Wheeland
NACM-Oregon, Inc.
Portland, Oregon
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To comment on this report,
send an e-mail to the ABI at info@abiworld.org.
INTRODUCTION
In May 1995, the Unsecured Trade Creditor Committee of the American
Bankruptcy Institute formed a Task Force to study the preference law, in
response to concerns raised that some change in the law was warranted.
While many supported the concept of recovering certain transfers made
shortly before a bankruptcy filing, increasingly, complaints were voiced
that the preference law was unfair and should be modified drastically or
eliminated completely. Even the most ardent supporters of the preference
law expressed the view that some change was mandated. The concerns
ranged from claims that the law was not providing for a meaningful
redistribution of property, to abuses in the manner in which preference
claims were pursued, to claims that the law, through uncertain concepts
like "ordinary course of business", fostered unnecessary and expensive
litigation. These concerns, in varying degrees, were expressed by trade
creditors, lenders and bankruptcy practitioners alike.
The Task Force established a number of goals. Primary among them was
to take a fresh look at the preference law to determine whether it
serves the traditional purposes of providing an equitable redistribution
of property and preventing a race to the courthouse, and, additionally,
whether there are other legitimate purposes that the law serves. To the
extent that credit providers were unhappy with the preference law, we
wanted to explore whether the basis for their sentiments comported with
what was occurring in the bankruptcy arena. We also wanted to find out
whether there are abuses in the manner that preferences are pursued, the
cost of preference litigation and how the preference law affects
decisions regarding the extension of credit and the collection of
obligations owed by a financially-troubled debtor.
The Task Force first met in August 1995 to begin the long process of
putting together two surveys—one of credit providers and the other
of bankruptcy practitioners. Several hundred hours of dedicated work
were devoted to this project by the 27-member Task Force, which included
representatives of the legal, accounting, turnaround and banking
communities. The lawyers, accountants and turnaround consultants
participating in the project had a diverse range of experience,
including the representation of debtors, unsecured creditors, secured
creditors and trustees. The goal was to develop two comprehensive,
objective and clearly written surveys that would provide useful
information to those studying the preference law. A decision was made to
focus the credit providers' survey (Survey No.1) on their opinions
concerning what payments should be avoidable, their perceptions of the
benefits that the law was providing, and the ways in which the
preference law affects their credit and collection activities. The
practitioners' survey (Survey No.2), by contrast, was designed to elicit
information that would provide a picture of what was actually going on
in the preference arena, the economics of preference litigation and data
concerning some of the more technical provisions of the statute, in
addition to eliciting some of the same opinion information as was sought
from the credit providers.
The surveys were prepared and the results tabulated with the advice
of Louis H. Primavera, Ph.D. and Bernard S. Gorman, Ph.D. and their
colleagues at St. John's University Graduate School of Arts and
Sciences. Their services were invaluable to the Task Force's
efforts.
Twelve hundred members of the National Association of Credit
Management and 386 members of the Commercial Finance Association were
sent the credit providers' survey, and 1,000 members of the American
Bankruptcy Institute were sent the practitioners' survey. The response
rate was very good—467 for the credit providers' survey (29.4%)
and 356 for the practitioners' survey (35.6%).
The results were analyzed and a report prepared by Professor Charles
Jordan Tabb, of the University of Illinois College of Law, in Champaign,
Illinois. The Task Force was very fortunate to secure the services of
Professor Tabb, whose credentials include the authorship of a law review
article titled Rethinking Preferences, the authorship of a
soon-to-be-published treatise titled The Law of Bankruptcy,
testimony before Congress and participation in working groups of the
National Bankruptcy Review Commission, and membership on the Advisory
Committee on the Federal Rules of Bankruptcy Procedure. Professsor
Tabb's excellent report should be read in conjunction with the
accompanying article by Scott E. Blakeley, titled A History of
Bankruptcy Preferences.
This project could not have been completed without the devotion of
time and energy by the Task Force members, each of whom played a
significant role in bringing this project to completion. Heartfelt
appreciation goes to each and every one of them for their efforts.
Appreciation is also extended to Samuel J. Gerdano, Executive Director
of the American Bankruptcy Institute, Professor Robert M. Zinman,
President of the American Bankruptcy Institute, and the Honorable Leif
M. Clark, an ABI Director, for their sage advice, support and
assistance, and to the ABI staff for assisting in the distribution of
the surveys and the printing of this report. Special thanks also to my
secretary, Lisa Parker for the countless hours she spent providing
secretarial assistance for this project.
We are mindful that a single study cannot provide all of the answers.
However, we are hopeful that this project will play at least a small
part in the ongoing effort to improve our bankruptcy laws and the
efficiency of our bankruptcy system.
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Joseph S.U. Bodoff, Chair
ABI Task Force On Preferences
May 1997
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ACKNOWLEDGEMENTS
The American Bankruptcy Institute extends its appreciation to the
Commercial Finance Association and the National Association of Credit
Management for mailing surveys to their membership, and to each of the
following organizations for their generous financial contributions:
Arthur Andersen LLP
Deloitte & Touche LLP
Dun & Bradstreet
Experian, Inc.
KPMG Peat Marwick, LLP
Price Waterhouse LLP
BDO Seidman, LLP
Coopers & Lybrand LLP
Ernst & Young LLP
Mahoney Cohen & Company, CPA, P.C.
M.R. Weiser & Co. LLP
National Association of Credit Management
Thanks also to each of the survey participants for taking the time to
complete and return the surveys.
This project could not have been completed without the support of all
of you.
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