In a preference action, one of the most common defenses is the so-called “ordinary course of business” (OCB) defense. Under 11 U.S.C. Section 547(c)(2), payments to a creditor may be shielded from preference liability if the creditor demonstrates that the payments were: (a) made in the ordinary course of the business between the debtor and the creditor (the subjective test) or (b) made according to ordinary business terms (the objective test). The subjective test is only available where the relationship between the parties is of sufficient duration to demonstrate a course of business.
Under the subjective test, courts will consider a number of criteria (none of which is determinative) including: (1) the duration of the parties’ business relationship; (2) whether there was a change in payment and collection during the 90 days preceding the filing date (the preference period), including a change in the tender of payment (e.g., wire transfer); (3) attempts at collection; (4) attempts to obtain security for payment; and (5) an increase in the amount of payments or an acceleration in the timing of payments.
