The Bankruptcy Code and its predecessor statutes have long permitted bankruptcy trustees (or their equivalents) to claw back preferences, which involve transfers made on preexisting debts within 90 days (or 1 year, if made to an insider) before a debtor files for bankruptcy. The trustee's power to avoid preferences is codified in Section 547(b) of the Bankruptcy Code.1 Significantly, the Bankruptcy Code recognizes that many payments within the preference period do not involve improper partiality for one creditor over others; in fact, making such payments might be necessary for a debtor to stay in business and avoid bankruptcy altogether. As a result, Section 547(c) of the Bankruptcy Code codifies affirmative defenses, including, for example, where a debtor received "new value" in exchange for a transfer or where the transfer was made in the ordinary course of business or was made according to ordinary business terms.2 As one court recently explained, these affirmative defenses are important to protect "most transfers attacked under ' 547," which are made pursuant to "'legitimate . . . established commercial practices.'"3
In 2019, Congress passed the Small Business Reorganization Act of 2019, which amended the...
