The “Critical Vendor” Preference Defense Still Not a Panacea for Trade Creditors

Through a preference claim, a debtor or trustee seeks to recover, subject to certain creditor defenses, payments that a trade creditor
received within the 90-day period prior to a bankruptcy filing Preference claims have always been an unfortunate creditor received within the 90-day period prior to a bankruptcy filing. Preference claims have always been an unfortunate reality for trade creditors. However, the frustration of having to return money has recently been exacerbated, because in many high-profile cases trade creditors’ § 503(b)(9) claims and post-petition administrative claims that historically had been paid in full have been materially impaired to varying degrees, resulting in general unsecured claims being virtually worthless. Many trade creditors are familiar with the most common preference defenses: the new value and ordinary course of business defenses. However, there are other potentially valuable preference defenses about which creditors should be familiar that can help mitigate preference risk. These defenses relate to the postpetition payment of a pre-petition claim and/or the impact of the assumption of an executory contract on preference liability.

These defenses were recently addressed by the U.S. Bankruptcy Court for the District of Delaware in Insys Therapeutics v. McKesson Corp. At issue in Insys was whether the inclusion of McKesson Corp., d/b/a RX Crossroads by McKesson, Relay Health Pharmacy Solutions and McKesson Specialty Arizona, Inc. (collectively, the “defendants” or “McKesson”), as eligible creditors under a court-approved customer order,[1] without additional facts, was sufficient to establish a complete defense to a preference claim.