In re National Gas Distributors, L.L.C.
United States Bankruptcy Court for the Eastern District of North Carolina
346 B.R. 394 (2006)
National Gas Distributors, L.L.C. (NGD), owned by Paul Lawing, financed its operations through Branch Banking and Trust Company (BB&T) using a $1 million line of credit and a $2.5 million working-capital loan, both secured by property owned by Paul's wife Ann and personally guaranteed by both Lawings. Each loan's maturity was extended multiple times, ultimately to December 23, 2005; NGD paid off the line of credit in full on December 15 and the working-capital loan in full on December 19, and separately paid BB&T $850,000 as collateral for outstanding letters of credit in exchange for BB&T releasing Ann's pledged property. NGD filed for Chapter 11 bankruptcy about a month later. The trustee, Richard Hutson II, sought to avoid the payoff transfers as preferential under 11 U.S.C. § 547, and BB&T invoked the "ordinary business terms" exception under § 547(c)(2)(B), submitting only an affidavit that early full payoffs were customary within the banking industry. The trustee moved for summary judgment.
Whether a creditor who received a debt payment otherwise subject to avoidance by the bankruptcy trustee is protected by the 'ordinary business terms' exception where the payment conformed to customary standards in the creditor's industry but not to customary standards in the debtor's industry or general business practice.