Avoidance Action

Last Updated: Jun 6, 2019

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Avoidance Action, in the context of a bankruptcy proceeding is the process in which a trustee can reclaim funds paid by the bankrupt company prior to filing for bankruptcy. For example, if a company were to file for bankruptcy, payments made by the company to suppliers might be eligible for recall by the trustee via an Avoidance Action. Typically the Avoidance Actions are taken when a creditor of the company received more favorable payments then another creditor. It might be a case that the creditor received more value than the goods delivered during the preference period which is 90 days for a non-insider. For insiders such as owners/officer the preference period is one year. Amounts received from Avoidance Actions are then pro-ratably distributed to unsecured creditors based on their amount of claims.