An Extraordinary Treatment of a Prepetition Loan Payment as an Avoidable Preference Payment
May 15, 2017

Compliance Bulletin

The CBA Legal Affairs Committee Chairman Ted Kitada, SVP, senior company counsel, Wells Fargo Bank, N.A., has prepared a Regulatory Compliance Bulletin discussing In re Tenderloin Health, where the Ninth Circuit Court addressed the treatment of a prepetition loan payment by a bank as an avoidable preference in a bankruptcy proceeding initiated by a trustee. Notwithstanding potential flaws in the court’s analysis, in a remarkable ruling it holds in favor of the trustee permitting the clawback of the payment for the benefit of the bankruptcy estate. The analysis provided in summarizes the extraordinary case, including the points overlooked by the court’s majority opinion.