Article

Note: E-Z Serve Convenience Stores, Inc. (Applicant) operated a convenience store business throughout the Southeastern United States and had to comply with various state and local laws requiring financial guarantees to certain creditors. To satisfy these requirements, a surety, Greenwich Insurance Company (Beneficiary), issued the original bond on behalf of Applicant. In order to increase the amount of the bond from US$1,700,000 to US$3,500,000, Beneficiary required Applicant to obtain an LC issued for US$1,750,000 in favor of Beneficiary.

Six months later, Beneficiary required additional collateral because of the continued financial deterioration of Applicant. To meet that requirement, Applicant remitted a check in the amount of US$950,000 to Beneficiary. Approximately three months later, Applicant filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code.

Claiming that Beneficiary received a greater distribution than it would have under a hypothetical bankruptcy distribution, Applicant's trustee filed a motion for summary judgment to avoid and recover the payment of US$950,000 under a theory of preference liability. Beneficiary filed a motion for summary judgment to dismiss Applicant's complaint. The United States Bankruptcy Court for the Middle District of North Carolina, Durham Division, Carruthers, J., denied all motions for summary judgment due to outstanding factual questions.

[JEB/dep]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.