Fred's, Inc. - Preference and Fraudulent Transfer Defense Lawyer

On September 7, 2021, the FI Liquidating Trust began filing adversarial complaints, regarding the bankruptcy cases filed by Fred's, Inc. and related debtors, seeking to avoid preferential and/or fraudulent transfers made to individual defendants and recover the value thereof, pursuant to 11 U.S.C. §§ 547, 548, and 550, and to disallow any claims held by the individual defendants.  To date, approximately 125 such complaints have been filed.

The Debtors in these Chapter 11 Cases are: Fred’s, Inc.; Fred’s Stores of Tennessee, Inc.; National Equipment Management and Leasing, Inc.; National Pharmaceutical Network, Inc.; Reeves-Sain Drug Store, Inc.; Summit Properties-Jacksboro, LLC; Summit Properties-Bridgeport, LLC; and 505 N. Main Opp, LLC.


Procedural History:

On September 9, 2019, each of the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code.

On June 4, 2020, the Court entered its Findings of Fact, Conclusions of Law, and Order Confirming the Modified Amended Joint Chapter 11 Plan for Fred’s, Inc. and the Debtor Affiliates Set for Herein confirming the Modified Amended Joint Chapter 11 Plan for Fred’s, Inc. and the Debtor Affiliates Set for Herein.   In accordance with the Plan and Confirmation Order, the FI Liquidating Trust (the “Trust”) was established.

Pursuant to paragraph 9 of the Confirmation Order and Article VIII.J of the Plan, retained Causes of Action, including causes of action under chapter 5 of the Bankruptcy Code, were transferred to the Trust.

Plaintiffs seek to avoid and recover from the individual Defendants, or from any other person or entity for whose benefit the transfers were made, all preferential transfers of property that occurred during the ninety (90) day period prior to the commencement of the Debtors’ bankruptcy case pursuant to sections 547 and 550 of the Bankruptcy Code.  

Plaintiffs also seeks to avoid and recover from Defendant, or any other person or entity for whose benefit transfers were made, any transfers that may have been fraudulent conveyances pursuant to sections 548 and 550 of the Bankruptcy Code.

In addition, Plaintiffs seek to disallow, pursuant to sections 502(d) and (j) of the Bankruptcy Code, any claim that Defendant has filed or asserted against the Debtors or that has been scheduled for Defendant. 

These adversary actions are before the Honorable Craig T. Goldblatt.


Background, as alleged by Plaintiff:

    "the Debtors were operators of general merchandise and pharmacy stores, generally serving low-, middle-, and fixed-income families, often located in small- to medium-sized towns in rural areas. The Debtors stocked items that addressed the everyday needs of its customers, and certain locations contained a pharmacy department that offered healthcare services."


Common Defenses in Preference Actions

The United States Bankruptcy Code provides many affirmative defenses to preference actions, contained within Section 547(c). For example, the most common defenses that may be available to a Defendant under Section 547(c) may include:

    •    the transfer was a contemporaneous exchange for new value given to the debtor (i.e., the debtor received something of value in exchange for the transfer); 11 U.S.C. §547(c)(1);

    •    after such transfer, Defendant gave new value to or for the benefit of the debtor (i.e., the Defendant extended additional credit to the Debtor after receiving the transfer) 11 U.S.C. §547(c)(4); or

    •    the transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the recipient (i.e., Defendant made the transfer under ordinary business terms). 11 U.S.C. §547(c)(2).

For more information, see our page on Preference Defense Litigation: http://www.tobialaw.com/delaware-preference-defense-lawyer.html

If you conducted business with any of the Fred's, Inc. Debtors and especially if you have received a complaint or a demand letter, or if a complaint has been filed against you or your business even if not served yet, email us at info@tobialaw.com or call the firm’s Wilmington offices directly at (302) 655-5303 to schedule a free initial consultation. We can discuss the situation and share with you our initial observations at no charge.
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