Legal Memorandum: Voidable Preference and Bankruptcy in MN

Issue: What are the current criteria for determining whether a voidable preference has occurred in a bankruptcy context?

Section 513.45(b) of the Minnesota Act is identical to § 5 of the Uniform Fraudulent Transfer Act (UFTA).  See Minn. Stat. § 513.45(b) (2013), Historical and Statutory Notes.  The provisions of the UFTA were influenced in large part by the preferential transfer provisions of the Bankruptcy Code, not the Bankruptcy Act.  See Uniform Fraudulent Transfer Act, Prefatory Note at 3, 6.  The current bankruptcy law applies “substantially different criteria for determining whether a voidable preference has occurred” than did the Bankruptcy Act at issue in In re Schindler, 223 F. Supp. 512, 530-31 (E.D. Mo. 1963).  See Frederick S. Wyle P.C. v. Texaco, Inc., 764 F.2d 604, 606 n.1 (9^th Cir. 1985) (citing 11 U.S.C. § 547; 4 Collier on Bankruptcy ¶ 547.03[2] (15th ed. 1982)).*FN1 The current criteria do not include any requirement related to the transferor’s belief in the debtor’s insolvency at the time the transfer is made.  See 11 U.S.C. § 547(b) (2012).  In fact, the Bankruptcy Code has entirely replaced the Bankruptcy Act of 1898.  See In re Carpenter, 408 B.R. 244, 247 (8^th Cir. BAP 2009), aff’d, 614 F.3d 930 (8^th Cir. 2010); In re Lanford, 10 B.R. 132, 133 (Bankr. D. Minn. 1981) (stating that Congress has completely changed the Bankruptcy Act, replacing it with the Bankruptcy Code). 

Importantly, all of the cases that apply the Schindler requirement that a “preference may be avoided . . . if the creditor . . . has, at the time when the transfer […]