In the latest Weekly Wright Report:
5 Hiring Danger Zones
While many companies today are making conscious decisions to increase diversity among its workforce, there are some danger zones to keep in mind.
- Job Requirements. Think about whether the position really requires a 4-year degree, or 15-20 years of experience. These criterion may negatively impact certain protected classes who historically were denied certain jobs; had to take a break from the workforce for other obligations; or who have more experience than your maximum requests.
- Targeted Applicant Pools. Don’t target only women or minorities without a reason. Instead, use targeted recruiting for supplementing, not supplanting your company’s general recruiting strategy.
- Blind Screening. Studies show that women and people of color are more likely to advance in the hiring process when their names and pronouns are redacted from resumes. When used regularly and consistently, it has great value. The problem occurs when there are exceptions to the practice for certain positions.
- Implicit Biases. Always be mindful of the types of implicit biases of your company’s interviewers. You don’t want your interviewers to be biased for or against men/women/minorities/young/old. Consider having a diverse group of interviewers participate in every interview.
- Diversity as a Basis for Hiring Decisions. Although your company’s goal may be to increase diversity, hiring decisions should not be made based on a candidate’s protected status alone. Experience and job-related skills remain important factors.
Preference Actions in Bankruptcy – Zombie Claims
When a party you are dealing with goes into bankruptcy it can be a major headache, but the preference powers under the Bankruptcy Code can be a real nightmare for your bottom line. Under the bankruptcy preference powers, a trustee or debtor in possession (“DIP”), is able to reach back in time, prior to the bankruptcy filing, and void, undo or set aside certain prior transactions and force a party who has received preferential payments to disgorge and return such funds. The really scary part is that the trustee can wait for over two years from the bankruptcy filing to assert preference actions. So, let’s look at an example: On January 1, 2019 you provide $50,000 worth of goods and services to a customer, the terms were payment in 30 days, but the customer didn’t pay for three months, then 70 days later the customer files chapter 7 bankruptcy, in February 2021 the trustee in the bankruptcy case files a preference action against your company seeking the return of the $50,000 payment you received in 2019. In the absence of any defenses, the transaction you thought was long dead, has now come back to life and you could be forced to return $50,000 – oh and the Debtor keeps the goods and services.
In general, a “preference” exists when a payment or other transfer is made to a creditor and not to others prior to a bankruptcy filing. Such favoritism or preferential treatment in close proximity to the filing of bankruptcy is prohibited by the Bankruptcy Code. The purpose of the preference powers is to promote equality of distribution among creditors by ensuring that all creditors of the same class will receive the same pro rata distribution share of debtor’s estate. Thus, the preference powers are designed to put all creditors on a relatively level playing field with respect to use of a debtor’s assets that may have been available prior to bankruptcy and “during the debtor’s slide into bankruptcy.” The elements of a preferential transfer are a transfer of an interest of the debtor in property (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; (4) made on or within 90 days before the date of the filing of the petition; and (5) that enables such creditor to receive more than such creditor would receive if the case were a case under chapter 7 of the Bankruptcy Code and the transfer had not been made.
It should be noted that in establishing the elements of a preference action, the Debtor’s or creditor’s intent or motive is not material. It is the effect of the transaction, rather than the Debtor’s or creditor’s intent, that is controlling. As noted above, the Bankruptcy Code generally provides that a preference action must be commenced within 2 years after the filing of bankruptcy. For the purposes of a preference action, the trustee has the burden of proving the elements by a preference by a preponderance of the evidence.
Fortunately, the Bankruptcy Code provides a number of defenses to help fight off these zombie claims. The three most well-known defenses are (1) contemporaneous exchange for new value; (2) ordinary course of business and (3) subsequent new value. The contemporaneous new value defense (§ 547(c)(1) of the Bankruptcy Code) provides that a trustee may not avoid a transfer to the extent the transfer was intended by the Debtor and creditor to be a contemporaneous exchange for new value given to the Debtor. So, in our earlier example, if the $50,000 worth of goods and services were paid for at the time they were delivered, the contemporaneous exchange of new value defense would apply. The new value defense is grounded in the principle that the transfer of new value to the Debtor will offset the payment made by the Debtor, and the Debtor’s estate will not be depleted to the detriment of other creditors.
The ordinary course defense (§ 547(c)(2) provides that the trustee may not avoid a transaction as preferential if the transfer was made in payment of a debt incurred by the Debtor in the ordinary course of business or financial affairs of both the Debtor and the transferee, and such transfer was made in the ordinary course of the business or financial affairs of the Debtor and transferee or was made according to ordinary business terms. The ordinary course defense is intended to protect recurring, customary credit transactions that are made and paid in the ordinary course of business. To establish the ordinary course defense, the question will be was the debt incurred in a typical, arms-length commercial transaction that occurred in the marketplace or as part of routine operations. Once it is established that the debt was incurred in the ordinary course, then it must be proven that either the transfer: (1) was made in the ordinary course of business of both parties or (2) it was made according to ordinary business terms.
Finally, the elements of the subsequent new value defense (§ 547(c)(4) are: (1) a creditor extends new value, (2) the new value provided is unsecured and (3) the new value is not repaid to the debtor after the preferential transfer. The subsequent new value exception was devised as a solution for the unsecured creditor with a running account who would otherwise find the last 90 days of payments avoided by the trustee in bankruptcy.
If you are faced with claims that have come back from the dead and that won’t seem to die, give us a call, we know how to kill these claims so that they stay dead for good.
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