The Worth Collection, LTD. - Preference and Fraudulent Transfer Defense Lawyer

Beginning on March 21, 2023, Douglas T. Tabachnik, in his capacity as the chapter 7 trustee of the bankruptcy estate of The Worth Collection, Ltd., began filing complaints, opening adversary proceedings, seeking to avoid and recover certain transfers made to the individual defendants and to disallow the claim(s) held by individual defendants. Approximately 163 such complaints have been filed thus far.

The complaints essentially allege that the transfers were preferential and/or fraudulent under the Bankruptcy Code and state law, and to disallow the claim(s) held by individual defendants.

Specifically, through the comprehensive complaints, Plaintiff seeks to claw back certain payments made to the individual Defendants, avoiding and recovering all (a) preferential transfers of property of the Debtors that occurred during the ninety (90) day period prior to the commencement of the bankruptcy proceedings, pursuant to sections 547 and 550 of the Bankruptcy Code, and/or (b) any transfers that may have been fraudulent conveyances pursuant to sections 544, 548 and 550 of the Bankruptcy Code and/or delaware state law, 6 Del C. §§ 1304, 1305, 1307.

In addition, Plaintiff seeks to disallow, pursuant to sections 502 of the Bankruptcy Code, any claim that the individual Defendant has filed or asserted against the Debtors or that has been scheduled for the individual Defendant.

On February 14, 2020, an involuntary petition was filed against the Debtor under chapter 7 of the Bankruptcy Code in the Bankruptcy Court, thereby
commencing the Chapter 7 Case.

On March 24, 2021, the Bankruptcy Court entered an Order for Relief against the Debtor, thereby allowing the Chapter 7 Case to proceed.

On June 23, 2021, the Bankruptcy Court entered an order appointing Douglas T. Tabachnik as the chapter 7 trustee to administer the Chapter 7 Case.

The bankruptcy case and these adversary actions are before the Honorable Judge Brendan L. Shannon.

Background Specific to the Debtor’s Sales Agents, as alleged by Plaintiff:

16. A significant element of the Debtor’s business model involved engaging numerous independent contractors as sales agents for the marketing and sale of high-end women’s apparel.
17. The Debtor referred to such sales agents as “stylists.”
18. Many of the Debtor’s sales agents maintained friendships and relationships with individuals who were likely to purchase the Debtor’s high end women’s apparel.
19. Many of the Debtor’s sales agents performed their services for the Debtor on a parttime, rather than full-time, basis.
20. The agreements between the Debtor and its sales agents provided for commissions to be paid to such sales agents for the sale of the Debtor’s merchandise.
21. In addition to commissions, the Debtor’s sales agents also could receive sales incentives, free merchandise, and reduced cost merchandise from the Debtor.
22. The Debtor had multiple tiers of contracts with its independent contractors, including what it termed as “Agency Leaders,” “Associate Agency Leaders,” and “Associates.”
23. Certain independent contractors of the Debtor would receive commissions based not only on what merchandise they sold themselves, but would additionally receive commissions based on what merchandise other independent contractors of the Debtor sold.
24. For example, an independent contractor of the Debtor that qualified as an “Agency Leader” could earn commissions on merchandise sold by certain other independent contractors of the Debtor.

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