Fifth Circuit Expands Forward Contract Preference Defense

If you are experienced defending preferences in bankruptcy, then you know the usual scenario. Your commercial creditor client comes to you with a pre-suit letter or complaint demanding the disgorgement of amounts paid by the debtor during the last 90 days before bankruptcy. The client assures you that the amounts paid were justly owed and properly paid, as they understand state law expectations. Surely, they say, this preference thing cannot be the law. Then you explain the elements and policy of Section 547 of the Bankruptcy Code and deliver the bad news that the justness and propriety of the payments when made is no defense. The definitions of "forward contract," "forward contract merchant" and "settlement payment" are found in three sub-sections of Section 101, which each defy linguistic precision by tautologically using the very phrase being defined in its own definition.