State law artisans' lien rights defeat preference exposure: the saga continues.(credit column)

If this writer is a bit repetitive in pointing out recent court decisions that uphold a trade creditor's fully secured state law possessory artisans' lien rights as a full defense to preference exposure, well let's just call this an advertisement for a legal session entitled "Meandering the Minefields of 'Hidden' Liens and Trust Claims" that will be presented at the upcoming May 2008 Credit Congress in Louisville.

However, all kidding aside, the United States Court of Appeals for the Sixth Circuit, in In re Southern Air Transport Inc., recently ruled that a trade creditor asserting a fully secured North Carolina possessory artisans' lien in the debtor's property had a full defense to a $100,000 preference claim. The debtor's bankruptcy trustee could not satisfy Bankruptcy Code Section 547(b)(5)'s requirement that the creditor had received more from the alleged preference than from the debtor's Chapter 7 liquidation.

The Preference Statute

Section 547(b) of the Bankruptcy Code permits a trustee or debtor-in-possession to recover a preference by satisfying all of the following requirements:

(a) The debtor transferred its property to or for the benefit of a creditor (Section 547(b)(1));

(b) The transfer was made on account of antecedent or existing indebtedness that the debtor owed the creditor (Section 547(b)(2));

(c) The transfer was made when the debtor was insolvent. A debtor's insolvency is defined on a balance sheet basis (the debtor's liabilities exceed its assets). The debtor is also presumed to be insolvent during the 90-day preference period (Section 547(b)(3));