RadioShack Liquidating Trustee Seeking Recovery of Preferences

RadioShack’s liquidating chapter 11 plan has gone effective, and the liquidating trust established under the plan is beginning to send preference demand letters to hundreds of landlords, suppliers, service providers, and other vendors to the bankrupt consumer electronics retailer. Burdened with more than $1 billion in debt, RadioShack filed for bankruptcy protection in February 2015 and shut down or sold off almost all of its 4,000-store chain. Under its chapter 11 plan, the corporate remains of what was once RadioShack will pay most secured lenders in full but will leave little behind for lower-ranking creditors. The liquidating trustee will seek to recoup some of this loss from the approximately $520 million paid to creditors in the months prior to the bankruptcy, by bringing preference actions.

Preference actions are authorized by a section of the United States Bankruptcy Code which permits a trustee to seek to recover certain payments that were made to a creditor within the 90 days immediately preceding a bankruptcy filing (or within one year if the creditor is an “insider”). The purpose of this provision is to achieve equal treatment of all similarly situated creditors of a bankrupt company, and ensure none are “preferred” by receiving payment of a greater percentage of their invoices than other creditors.

However, not all payments made within these time windows before a bankruptcy are recoverable by the trustee. There are a number of defenses that can, if applicable, reduce or eliminate the amount a creditor that received a payment must repay.

The liquidating trustee will bring preference actions in the United States Bankruptcy Court for the District of Delaware. Dilworth Paxson’s bankruptcy attorneys are very experienced in handling preference actions in this court, and can quickly and efficiently analyze them to determine if any defenses are applicable. If you have any questions about potential preference actions in the RadioShack bankruptcy or in any other matter, please feel free to contact Jim Matour at jmatour@dilworthlaw.com or Jesse Silverman at jsilverman@dilworthlaw.com.