## Facts

- ZZZZ Best Co., Inc. entered a long-term revolving credit agreement with Union Bank in December 1986 for $7 million, with monthly interest obligations.
- Within 90 days before the debtor filed a Chapter 7 petition in July 1987, the debtor paid Union Bank two interest payments totaling about $100,000 and a $2,500 loan commitment fee.
- The Chapter 7 trustee sought to avoid the payments as preferential transfers under 11 U.S.C. § 547(b).
- Union Bank asserted the § 547(c)(2) “ordinary course of business” exception.
- The bankruptcy court held the transfers were protected by § 547(c)(2), and the district court affirmed.
- The Ninth Circuit reversed, holding § 547(c)(2) did not apply to payments on long-term debt.
- The Supreme Court granted review to resolve a circuit conflict on whether § 547(c)(2) categorically excludes long-term debt.

## Issues

1. Whether 11 U.S.C. § 547(c)(2) categorically excludes payments on long-term debt from the “ordinary course of business” exception to preference avoidance.

## Decision

- The Supreme Court unanimously reversed the Ninth Circuit and remanded.
- The Court held that § 547(c)(2) is not limited to short-term, trade-type debt; payments on long-term debt may qualify if the statutory requirements are satisfied.
- The Court did not decide whether these particular payments met § 547(c)(2)’s elements, leaving that fact-specific application to the lower courts.

## Legal Principles

- When § 547(c)(2)’s text contains no distinction between long- and short-term debt, courts may not add a categorical limitation not stated by Congress.
- The post-1984 version of § 547(c)(2) protects transfers to the extent they are: (A) for a debt incurred in the ordinary course of business or financial affairs of the debtor and transferee; (B) made in the ordinary course of business or financial affairs of the debtor and transferee; and (C) made according to ordinary business terms.
- Legislative history and policy concerns cannot override the statute’s unqualified language when the text is clear.
- The preference scheme’s goals include discouraging a creditor “race to the courthouse” and furthering equal distribution, and the ordinary-course exception may serve those goals by protecting routine payments.

## Conclusion

The Court held that the Bankruptcy Code’s ordinary-course exception in § 547(c)(2) is available for payments on long-term debt as well as short-term debt, and it rejected a categorical rule excluding long-term creditors from the defense.


Union Bank v. Wolas, 502 U.S. 151 (1991)