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Trustee Should Not Pursue Preference Litigation If There Is Little Left for Unsecured Creditors According to Latest ABI Poll

Contact: John Hartgen
             703-739-0800
             jhartgen@abiworld.org


 

TRUSTEE SHOULD NOT PURSUE PREFERENCE LITIGATION IF THERE IS LITTLE LEFT FOR UNSECURED CREDITORS, ACCORDING TO LATEST ABI POLL

December 4, 2007, Alexandria, Va. —A majority of respondents (64 percent) to ABI’s latest online poll agreed that a trustee should not pursue even substantial preference litigation if, after the payment of administrative expenses, there is likely little left for unsecured creditors. Forty-eight percent of respondents “strongly agreed” and 16 percent “somewhat agreed” that trustees should not pursue preference litigation if there is likely little left for unsecured creditors after the payment of administrative expenses.

Thirty-one percent of respondents, however, thought that a trustee should pursue preference litigation even if there is little money likely to be left over for unsecured creditors after administrative expenses are paid.  Fifteen percent “strongly disagreed” and 16 percent “somewhat disagreed” that a trustee should not pursue even substantial preference litigation if, after the payment of administrative expenses, there is likely little left for unsecured creditors. Two percent of the respondents did not know or had no opinion on the issue.

The U.S. Bankruptcy Court for the Northern District of Texas recently agreed with the trustee in In re Brook Mays Music Co. that pursuing preference litigation, despite transfers totaling more than $12 million by the debtor, would not be necessary as there would have been little chance that unsecured creditors would have realized any benefit. While not issuing a “blanket ruling that preference litigation should never be pursued by a bankruptcy fiduciary if the only parties who benefit are professionals and a secured or undersecured lender,” the court noted that there is nothing in the Bankruptcy Code that requires a preference action to benefit the unsecured creditors.

ABI members and members of the public were welcome to submit their response to the statement: “A trustee should not pursue even substantial preference litigation if, after the payment of administrative expenses, there is likely little left for unsecured creditors. (In re Brook Mays Music Co., N.D. Texas)”

ABI’s Quick Poll is posted on ABI’s home page, www.abiworld.org. ABI members and the public are invited to respond to a question on a timely bankruptcy or insolvency issue. Visit http://www.abiworld.net/quickpoll/ to access the results of previous ABI Quick Polls.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,500 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.