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Contract Counterparty Can Correct Error in Sale Order To Block Preference Claim

Successfully represented contract counterparty in defeating a preference claim under Section 547 of the Bankruptcy Code by obtaining an order of the U.S. Bankruptcy Court for the Eastern District of Michigan that corrected its prior order authorizing the sale of the debtor’s assets. The original order approving the sale erroneously failed to include the client’s contract as being assumed by the debtor and assigned to the buyer under Section 365 of the Bankruptcy Code. The assumption and assignment of a contract precludes a preference claim. Over the opposition of the Committee of Unsecured Creditors, the Bankruptcy Court corrected its order based on a finding that a mistake had occurred. The liquidating trustee, as successor to the Committee, appealed to the U.S. District Court for the Eastern District of Michigan and then to the Sixth Circuit Court of Appeals. Both courts affirmed the Bankruptcy Court’s decision and the preference action was withdrawn.

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