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Ask WALLSTREETESQ Your Own Question
Category: Bankruptcy Law
Satisfied Customers: 17248
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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I am an attorney of 14 years and am providing advice, business

Customer Question

I am an attorney of 14 years and am providing advice, business planning, dispute resolution and litigation services to a law firm in a wind-down mode. The firm may end up with a voluntary or involuntary bankruptcy somewhere down the line, though they profess to be solvent today. I used to be their litigation department manager, then became Of Counsel, and now i am their lawyer. However, i continue to work for them at a heavily discounted rate - far below anything the market would bear for comparable knowledge and experience, particularly in their niche area of the law. They want to keep my services for as long as possible but want to hedge their cost of doing so. They have offered me a 6 month engagement, with the entire fee to be paid up front as a non-refundable retainer to guarantee my availability for the entire 6 month period (per the applicable bar rule which provides "Retainers are funds paid to guarantee the future availability of the lawyers legal services and are earned by the lawyer upon receipt") and up to 160 hours of work per month for the 6 month period. My question is this: in the event of a bankruptcy will the lump sum retainer payment likely be regarded as either a preferential or fraudulent payment? Thank you very much for your insights.
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  WALLSTREETESQ replied 6 years ago.


Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on


Will you file the bankruptcy for the employer?

Customer: replied 6 years ago.
No, my services are non-BK advice, business planning, dispute resolution and litigation.
Expert:  WALLSTREETESQ replied 6 years ago.
If they file their bankruptcy 90 days or less after they paid your retainer, the trustee could make an argument, but as long as you can show that your services are valid, your payment would be considered an exception. Under the Bankruptcy code, exceptions to the preferential payment rule are:
  1. Where the payment was made as part of a contemporaneous exchange for new value given; or
  2. Where the payment was made in the “ordinary course of business” between the debtor and creditor (note: this has sometimes been held to mean that invoices must be paid within the time period required on the invoice); or
  3. Where the transfer creates a security interest in property acquired by the debtor securing a new value given after signing a security agreement describing the property as collateral and given by or on behalf of the secured party to enable the debtor to acquire the property and where the debtor does acquire the property.
Customer: replied 6 years ago.
Any concern of fraudulent transfer under 548?
Expert:  WALLSTREETESQ replied 6 years ago.
If you have a detailed bill with your hourly rate, and services rendered, the trustee will rarely consider legal fees, as preferential payment, unless their is clear evidence that the payment was not market rate, and no services were planned or completed.

If the trustee tries to argue a fraudulant transfer, you have to argue the following as the statute is specific.
11 USC § 548. Fraudulent transfers and obligations


(1) The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily--



(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and


(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;

(II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital;

(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured ; or

(IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.

Expert:  WALLSTREETESQ replied 6 years ago.
If the company is filing a chapter 11 or 7, and the business will no longer run, your un earned fees may be at risk, as your services will no longer be needed.

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