Assessing and Proving the Subsequent New Value Defense to Bankruptcy Preference Claims

The subsequent new value defense is perhaps the most used defense. It is, from a books and records perspective, the easiest defense to prove. The focus is on the period after the potentially preferential payment.

The defense requires that 2 elements be proven: (1) “new value” be given by the supplier after the supplier received payment; and (2) the supplier never received payment for the “new value”. “New Value” can be anything that creates value in the customer’s company. However, most often, it simply means that goods or services were provided after the date a payment was made.

There are some legal issues that have not been resolved regarding this defense and the scope of its application. Thus, while factually this defense is the simplest, the legal issues can be complex.

In the above video, we review the “subsequent new value” defense and illustrate its application with a simple example.