Understanding Regular Course of Business: A Key Legal Concept
Definition & meaning
The term "regular course of business" refers to the standard procedures and practices that a business follows in its daily operations. This includes routine record keeping and the typical transactions that occur within a business. In legal contexts, this phrase is often used to evaluate the legitimacy of certain transactions, particularly in bankruptcy cases. It serves to protect transactions that add value to the bankruptcy estate, allowing creditors to argue for exceptions to recovery powers outlined in the Bankruptcy Code.
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The concept of regular course of business is primarily relevant in bankruptcy law. It is used to determine whether certain payments made to creditors can be recovered by the bankruptcy trustee. Vendors often invoke this defense when they receive payments from a debtor within 90 days prior to the bankruptcy filing. By establishing that these payments were part of the regular course of business, creditors can protect themselves from having to return funds to the bankruptcy estate.
Key Legal Elements
Real-World Examples
Here are a couple of examples of abatement:
(hypothetical example) A supplier regularly ships goods to a retailer and receives payments every 30 days. If the retailer files for bankruptcy and the supplier received a payment just before the filing, the supplier can argue that this payment was part of the regular course of business, potentially protecting it from recovery.
Comparison with Related Terms
Term
Definition
Key Differences
Ordinary Course of Business
Routine transactions typical for a business.
Focuses on standard business operations.
Preference Payment
Payments made to creditors before bankruptcy.
Can be recovered unless proven to be in the regular course of business.
Common Misunderstandings
What to Do If This Term Applies to You
If you are a creditor who has received payments from a debtor who later files for bankruptcy, consider documenting the nature of those payments. You may want to gather evidence showing that these payments were part of the regular course of business. Users can explore US Legal Forms' templates for assistance in managing these situations. If the matter is complex, seeking legal advice may be necessary.
Quick Facts
Typical timeframe for payments: 90 days prior to bankruptcy filing.
Criteria for defense: Payments must be ordinary and customary.
Legal area: Bankruptcy law.
Key Takeaways
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FAQs
What is the regular course of business?
It refers to the routine practices and transactions a business engages in as part of its daily operations.
How does this term affect bankruptcy cases?
It helps determine whether certain payments made to creditors can be protected from recovery by the bankruptcy trustee.
Can all payments before bankruptcy be recovered?
No, if they are shown to be part of the regular course of business, they may be exempt from recovery.
