IN THE MATTER OF CLARK PIPE AND SUPPLY CO., INC. 893 F.2d 693 (1990) CASE BRIEF

IN THE MATTER OF CLARK PIPE AND SUPPLY CO., INC.

893 F.2d 693 (1990)

NATURE OF THE CASE: Associates Commercial Corporation (D), lender, appealed a judgment, which determined that payments to D were preferential under 11 U.S.C.S. § 547(c)(5) and also the equitable subordination of its claims.

FACTS: Clark Pipe and Supply Company, Inc. (P) bought and sold steel pipe used in offshore drilling platforms. D and P executed various agreements where D made revolving loans secured by an assignment of accounts receivable and an inventory mortgage. P was required to deposit all collections from the accounts receivable in a bank account belonging to D. D made advances as per a formula, and the agreements provided that D could reduce the percentage advance rates at any time at its discretion. P's business went south in 1981, and D reduced the percentage advance wherein P would have just enough cash to pay its direct operating expenses. P keep its doors open and sold inventory and the proceeds were used to pay off the past advances from D. D never dictated how P should run its business or who should get paid nor did D ever threaten to cut-off advances if P did pay vendors. A vendor initiated foreclosure proceedings and seized the pipe it had sold P. When a third unpaid creditor initiated foreclosure proceedings P sought protection from creditors under Chapter 11 and the case was converted to a Chapter 7. The Trustee (P) sought the recovery of alleged preferences and equitable subordination of D's claims. The court required D to turn over $370,505 of payments found to be preferential and subordinated D's claims. The district court affirmed. This appeal eventually resulted.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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