PREFERENCE LITIGATION

 

Q. Avoiding Powers under Chapter 9

Given the continued economic turmoil that many municipalities are facing, it is important to remember that there are some specific avoidance provisions contained in Chapter 9 of the Bankruptcy Code. Section 926(a) provides that if the debtor refuses to pursue an avoidance action, then on request of a creditor, the court may appoint a trustee to pursue such cause of action. Section 926(b) states that "a transfer of property of the debtor to or for the benefit of any holder of a bond or note on account of such bond or note, may not be avoided under section 547 of this title." There does not appear to be any reported decisions analyzing the breadth of Section 926(b), but presumably these type of cases will get additional press as municipalities struggle to deal with failed financing schemes on sewer or school bonds and/or trying to make ends meet.

R. Section 549 - Postpetition Transactions.

1. The Statute.

Section 549 states that

(a) except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate -

(1)

that occurs after the commencement of the case; and

(2)

(A) that is authorized only under section 303(f) or 542(c) of this title;

or

(B) that is not authorized under this title or by the court.

(b)

In an involuntary case, the trustee may not avoid under subsection (a) of this section a transfer made after the commencement of such case but before the order for relief to the extent any value, including services, but not including satisfaction or securing of a debt that arose before the commencement of the case, is given after the commencement of the case in exchange for such transfer, notwithstanding any notice or knowledge of the case that the transferee has.

(c)

The trustee may not avoid under subsection

(a)

of this section a transfer of real property to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value unless a copy or notice of the