Critical-Vendor Status: An Additional Preference Defense?

For trade creditors, being designated a “critical vendor” at the outset of a chapter 11 case often serves as an avenue of payment for some or all of a vendor’s pre-petition claims. In exchange, trade creditors must generally commit to continuing to provide goods or services to the debtor post-petition on “customary” or agreed-upon terms. Many vendors may assume that obtaining critical-vendor status and the debtor’s corresponding payment of outstanding pre-petition invoices means that they are immune from preference lawsuits. However, a recent decision from the U.S. Bankruptcy Court for the District of Delaware in In re Maxus Energy Corp. serves as a reminder that a debtor’s designation of a creditor as a “critical vendor” is insufficient by itself for the creditor to carry its burden on summary judgment in a preference lawsuit.