Within Chapter 11 cases, navigating preferences can be a complex and arduous process that requires strategic foresight and hands-on experience. In charting one's course through bankruptcy proceedings, there are specific pitfalls and considerations that debtors, creditors, and their legal and financial advisors should be aware of and approach carefully when preference actions are involved.

While there are many potential issues surrounding preference actions that could play out in a Chapter 11 case within any industry, retail restructurings can bring certain considerations. In the current economic environment, a retailer filing for bankruptcy will likely either sell substantially all of its assets or use the Chapter 11 process to reorganize its business and continue on as a going-concern. In either situation, there are numerous factors that financial advisors and other involved professionals must understand and evaluate before determining the best approach when it comes to addressing preference claims.

A Brief Overview of Preference Claims

Under the tenets of the U.S. Bankruptcy Code, unsecured creditors in the same class are to be treated equally. When certain unsecured creditors are paid in the period prior to the debtor's bankruptcy filing, and others are paid a lesser amount, or not at all, a disparity in treatment can arise.