On December 9, the Bankruptcy Court for the Southern District of Texas issued an opinion (99 pages plus a 3-page appendix) holding that several of Enron’s former employees who received large bonuses on the eve of the company’s bankruptcy must repay those bonuses to Enron’s bankruptcy estate as preferential and/or fraudulent transfers.

The opinion is remarkable not for the fact that the court found the bonuses were subject to avoidance under 11 U.S.C. ?? 547 and 548 — on the surface, the facts seem to leave room for no other conclusion — but for the painstakingly methodical analysis of the elements of both the plaintiff’s case and the asserted defenses. Almost one-third of the opinion — just over 30 pages — addresses the issue of insolvency alone. This part of the opinion (beginning at page 48) is worth reading all by itself as it discusses and applies various insolvency tests and provides an interesting timeline of certain events in the weeks and days before Enron filed for bankruptcy.

Although recent amendments to the bankruptcy code might change a few aspects of preference litigation, this opinion serves as a good reminder of what plaintiffs and defendants need to do to properly prepare an avoidance suit for trial. By addressing elemental issues such as when an “antecedent debt” is incurred, and whether post-petition services to a bankrupt company qualifies as “value” extended to the debtor, the opinion covers a lot of bases. We’ve parked a copy of the onion here: http://www.mytempdir.com/320864.

Mac