Preferences & Chapter 7 Bankruptcy Filings

PLEASE NOTE THAT EFFECTIVE IMMEDIATELY, PLEASE USE 917 363 3391 TO CONTACT JIM SHENWICK, ESQ.

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The New York Post recently had an article about a New York bankruptcy trustee who has ordered dozens of former sales reps at Worth Collection (an upscale, New York-based women’s apparel label that filed for chapter 7 bankruptcy three years ago) to return tens of thousands of dollars in commissions they earned shortly before the company’s bankruptcy filing. The article can be found at https://nypost.com/2023/03/30/bankrupt-nyc-fashion-labels-sales-reps-ordered-to-return-commissions/?utm_source=gmail&utm_campaign=android_nyp

The article states that stylists who worked as independent contractors for Worth Collection  (which catered to professional women at trunk shows that were typically held at the stylists’ homes or showrooms) were ordered to repay  the earned commissions by a US Bankruptcy Trustee.

In the way of background, when a company files for chapter 7 bankruptcy protection, a bankruptcy trustee is appointed to close the business, liquidate the business’s assets, and distribute those monies to creditors. 

The bankruptcy trustee will review the company's financial statements, bank statements, check registers, and tax returns to determine if preferential payments or fraudulent conveyances were made. If  those payments occurred, then the bankruptcy trustee will commence lawsuit(s) (called Adversary Proceedings in bankruptcy parlance) to recover those monies.

While not actually stated in the article, it is this author’s opinion that the bankruptcy trustee’s action against the stylists was for preferential payments, i.e., payments made to the stylists on account of antecedent debts (old debts) within 90 days of Worth Collection’s chapter 7 bankruptcy filing. 

Additionally, unless the bankruptcy filing  was an involuntary bankruptcy filing, the company could have delayed their bankruptcy filing  by 90 days, to have prevented the bankruptcy trustee's preference actions against the stylists.

For this reason, whenever we advise a company to consider filing for chapter 7 bankruptcy, we discuss preference issues with management and the owners, review bank statements, and check registers for preference issues. 

Individuals or businesses with preferences can contact Jim Shenwick, Esq., for a consultation.

 

Jim Shenwick, Esq. 917 363 3391  jshenwick@gmail.com

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