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Bankrupt dealer suing Apple over 'preferential transfers'

updated 06:25 pm EDT, Wed July 27, 2011

Ultimate Electronics wants money refunded

Ultimate Electronics, a consumer technology chain that shuttered its stores and went out of business in April, is in court trying to recover money it paid Apple for products it received and re-sold -- a technique known as "preferential transfers" that could see the defunct chain recover as much as $420,000 from Apple, AppleInsider reports. It is normally used only to try and recover the last payments a company sent its suppliers.

The concept of "preferential transfers" itself comes from a loophole in the bankruptcy law, where companies that file for bankruptcy can try to claim "preferential" status on money sent to suppliers up to 90 days before before the company actually files for bankruptcy -- even though the company received the goods or services it bought and presumably re-sold them. Ultimate Electronics filed for bankruptcy in January, and its trustee is claiming all monies sent to Apple between November 1st, 2010 and January 24th, 2011.

Bankruptcy attorney and author Robert S. Bornstein refers to this technique as the "double whammy," according to the AppleInsider report. He describes the technique, where a company with an ongoing credit arrangement with a supplier such as Apple orders merchandise and then files for bankruptcy, forcing the supplier to write-off any outstanding debt -- but then at some point (even years) later, gets a threatening letter from the Bankruptcy Trustee demanding full refund of the last payments the now-defunct company made to the supplier.

Such claims are usually settled for less than 100 percent of the money requested, even if the supplier is still owed money from the bankrupt company -- the additional refund may be added to the list of debts owed and considered under the bankruptcy filing. The total amount sought by Ultimate Electronics against Apple is $420,104, including a series of checks written on the day of the bankruptcy filing totalling $181,242, presumably to pay off its outstanding balance.

In a final twist, some 25 percent of Ultimate Electronics was owned by Apple manufacturing rival Hewlett-Packard. [via AppleInsider]



By Electronista Staff
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Comments

  1. MyRightEye

    Fresh-Faced Recruit

    Joined: Apr 2008

    +7

    What??

    OK, laws like this need to be struck from the register.

  1. chas_m

    Joined:

    -7

    Bankruptcy law

    Is almost as broken as patent law. It didn't used to be, but (you know who) REPUBLICANS got their grubby mitts on bankruptcy law about three years ago and guess what happened.

  1. ravemac.com

    Fresh-Faced Recruit

    Joined: Aug 2008

    +2

    re:Bankruptcy law

    Clearly you hate republicans, and that is your choice. But don't let your hatred make you appear ignorant. These laws were developed, as our company experienced, to keep companies from paying off 'preferred creditors' (people they owed money too) while short-changing others, who may have been more entitled to the money. As lousy as it can be there are very legitimate reasons these laws exist. If I owed your company $10k and my brothers company $10k and I knew I was going bankrupt, I could just pay the last of my money to my brother before going under and you get nothing. Under these laws the bankruptcy trustee can try and reclaim this money paid and distribute it in a more 'fair' manner. So you can keep your bigoted comments to yourself, please.

  1. Inkling

    Dedicated MacNNer

    Joined: Jul 2006

    0

    Strange reasoning

    Ravemac.com is right. It's absurd to blame "REPUBLICANS" for something you alleged happened in government three years ago. That year (2008) is when the Democrats took over both houses of Congress with veto-proof majorities. That's when our deficit began to spin out of control. I's also silly to blame Republicans for almost anything done by lawyers. Like teachers unions, lawyers overwhelming contribute to the Democratic party.

    Like any law, this one has mixed benefits. First, it's doubtful that a company that's 25% owned by HP would have a "my brother" sweetheart relationship with Apple. They probably bought and quickly paid for Apple products simply because they knew they could sell and profit from them quickly. And that's where the flip-side of this law comes into play. If the courts get too aggressive at grabbing back money for products delivered and sold, companies such as Apple will quit supplying companies in trouble, making their bankruptcy more likely.

  1. testudo

    Forum Regular

    Joined: Aug 2001

    0

    Re: strange reasoning

    HP may have owned 25%, but there's still the majority ownership that may have the sweetheart deal.

    And this is to prevent the CEO or CFO from going "Hey, we're going under, let's pay off Apple, who'll be happy so they'll in turn give our co-owners HP something in return". Or other tricks these guys come up with.

    And the last I checked, once a company goes 'bankrupt', it is up to the trustee to determine who to start grabbing money from. And why should some creditors (like Apple) get paid in full while others (like a landlord or sub-contractor) get nothing? Just because they decided to pay 'x' vs. 'y'? Where's the fair in that?

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