Courts Remain Uncertain on How to Apply the New Due Diligence Requirement for Preference Claims

Since Congress amended the preference section of the Bankruptcy Code in 2019, bankruptcy courts have grappled with how to interpret the due diligence requirement added by the amendment and what burden it imposes on plaintiffs before they bring preference claims. In particular, courts are divided on whether the 2019 amendment adds an affirmative pleading requirement and, if so, how that pleading requirement can be met.

In this C&G Client Alert, Daniel H Tabak, Randall W Bryer and Christine M Jordan explore the background of the amendment and the recent case law interpreting the revised Bankruptcy Code section. The authors conclude with practical advice for defendants amid the continued uncertainty.