Attn- Lady In Red

[weenor]

What is the name of your state? Alabama

I am now researching but if you happen to know off the top of your head.

I have client who has recently been sued in adversarial proceeding by a trustee in a rather large bankruptcy that has been converted to a Chapter 7 from the original Chapter 11 filed in 2002. The debtor was self insured for workers' compensation benefits and my client acted as the third party administrator for any claims. According to my client the debtor periodically deposited funds with my client and my client used those funds to pay benefits to injured workers. I have answered the petition with an affirmative defense under 547 of ordinary and normal blah...blah....

My question is...my client insists that as a matter of law they cannot be forced to give back the $22,000 transfered to them within 60 days of the filing of the petition, because both the debtor and my client were under a statutory obligation to pay workers' compensation benefits. Is there any such defense?

 

[Ladynred]

my client insists that as a matter of law they cannot be forced to give back the $22,000 transfered to them within 60 days of the filing of the petition, because both the debtor and my client were under a statutory obligation to pay workers' compensation benefits.

Well, this is a bit more complicated.. a Ch 11 converted to a Ch 7.

If it were anything but worker's comp payments they might indeed be considered preferential and retriveable by a Trustee. I really don't know that the Trustee can touch this type of disbursement.

You really need to ask a lawyer who know exactly what's involved.

 

[weenor]

Well, this is a bit more complicated.. a Ch 11 converted to a Ch 7.

If it were anything but worker's comp payments they might indeed be considered preferential and retriveable by a Trustee. I really don't know that the Trustee can touch this type of disbursement.

You really need to ask a lawyer who know exactly what's involved.

Update/FYI- I have done a lot of research since my original post and wanted to post back in case anyone else needs the info.

1. There is no specific case or statute in the 11th Circuit- yet (see below)- deciding the issue of whether a trustee can avoid transfers that are payments to procure state law required workers' compensation coverage.

1. I believe that since my client is a TPA that merely administered but did not fund the payments, that the transfer cannot be avoided becuase there is no debtor/creditor relationship

2. In addition, I have amended my answer asserting that the transfer was not preferential because it involved payments for workers' compensation benefits that would receive 504 priority. The argument goes that there can be no preference when the money would have paid to the TPA anyway when the Debtor is discharged.

In March 2006 the U.S. Supreme Court heard oral arguments in Howard Delivery Services, Inc. v. Zurich a case in which a workers' compensation insurer argues that premiums paid to it should be considered payments to an employee benefit that is entitled to 504 priority because workers' compensation coverage is required under state law. No ruling yet.