On September 17, 2025, the U.S. Bankruptcy Court for the District of Connecticut rejected an argument by a debtor that payments made by its creditor to a financial consultant were preferential transfers under the Bankruptcy Code. The court’s decision focused on whether the creditor was a “mere conduit” for the transfer of money from Old CPI to the financial consultant.
Carla’s Pasta, Inc. was a Connecticut manufacturer of food products. BMO Harris Bank, N.A. and certain other lenders agreed to lend Carla’s money. The terms of the credit agreement required Carla’s to reimburse BMO for any expenses related to the enforcement of BMO’s rights under the agreement. Carla’s later encountered financial problems, and BMO hired a financial consultant, Novo Advisors, LLC, to investigate the company’s financial viability. Novo billed BMO for its services. On January 28, 2021 Carla’s made two payments to BMO totaling $273,616.25. Later the same day, BMO paid the exact same amount of money to Novo.
After eventually filing for bankruptcy, Carla’s argued that Novo ought to return the two payments because they were preferences under 15 U.S.C. § 547. While Carla’s acknowledged that it never directly transferred money to Novo, the company contended that BMO acted as a “mere conduit” in receiving the funds, such that as a practical matter, the two payments were made from Carla’s directly to Novo.
The court disagreed. It pointed out that BMO would be a “mere conduit” only if it lacked the right to exercise dominion and control over the funds. But BMO did have the right to control the funds. The credit agreement required Carla’s to pay BMO (not third parties engaged by BMO) for any expenses related to the enforcement of its rights under the agreement. BMO could then do whatever it wanted with the money. Therefore, the court concluded that BMO did not act as a mere conduit, and the payment to Novo did not constitute a preference.
The case is In re Old CP, Inc., No. 21-20111 (JJT) (Bankr. D. Conn. Sept. 17, 2025). The debtor is represented by J Green & Sklarz, LLC. Novo is represented by Arnold & Porter Kaye Scholer, LLP and Harlow, Adams & Friedman, P.C. The opinion is available here.
