Legal Question in Bankruptcy in Massachusetts

Insider Preferences

I understand in business bankruptcies that payments to insiders w/i 12 months of bankruptcy are considered preferences and can be reversible in bankruptcy.

Does this apply to payments to the CEO for:

1. Normal salary; and

2. Reimbursement of normal operating and travel expenses incurred and paid by the CEO with personal credit card on a regular and consistent basis promptly after receiving such bills?


Asked on 7/19/01, 3:55 pm

1 Answer from Attorneys
William McLeod McLeod Law Offices, PC

Re: Insider Preferences

Well, it's going to depend on a lot of factors you do not mention. If the company was undercapitalized, there is likely going to be issues (depending on ownership interests of the CEO). In addition, it is important to know precisely WHAT the salary/credit card expenses were paid with (were they paid with income or capital?). There is no boiler plate answer to this question, because every company presents a unique set of facts that need to be analyzed. Whether this will be an issue for you depends also on the assets of the company, the amount of debt, your personal debt load, etc. To see whether this would be an issue for you, you should sit down with a bankruptcy attorney.

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Answered on 7/23/01, 12:33 pm


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