In a case of apparent first impression, U.S. Bankruptcy Judge Christopher S. Sontchi considers whether post-petition “critical vendor” payments of pre-petition claims reduced “new value”. Judge Sontchi holds that such post petition payments do not reduce the amounts available for the subsequent new value defense under 11 U.S.C. § 547(c)(4). [The decision is currently on appeal to the United States Third Circuit Court of Appeals in In re Friedman’s Inc. Appeal Docket No. 13-1712. Briefing before the Court of Appeals is complete and oral argument is scheduled for October 17, 2013.]
Articles tagged with: subsequent new value defense
Interep National Radio Sales, Inc. Bankruptcy: Silverman v. Burst Media Corp. – Memorandum of Law in Support of Motion for Summary Judgment
05/26/2011 – Memorandum of Law in Support of Motion for Summary Judgment, filed in the Interep National Radio Sales, Inc. Adversary Proceedings by Burst Media Corp. before Judge Drain in the Southern District of New York (Manhattan). Defendant presents 3 grounds for its motion for summary judgment: (1) an ordinary course of business defense; (2) a subsequent new value defense based on unpaid pre-petition invoices; and (3) a subseqent new value defense based on services the defendant provided after petition date and prior to the appointment of Trustee and for which the debtor fail make payment.
Circuit City Stores Bankruptcy Court – Transfer to Satisfy 503(b)(9) Claim Negates New Value
Eastern District of Virginia Bankruptcy Judge Kevin R. Huennekens, in a December 1, 2010 opinion in Circuit City Stores, Inc. v. Mitsubishi Digital Electronics America, Inc. (AP No. 10-03068), held that the preference claim defendant could not utilize a new value defense (Section 547(c)(4) defense) if the defendant receives a transfer for its § 503(b)(9) administrative claim predicated upon the same instance of new value. In reaching the conclusion, the Court methodically and with remarkable precision parses through the complexities of Section 547(c)(4). Given the Court’s reasoning, the next question is “What about payments post petition under critical vendor, warehouseman, carrier and wage motions.”
“Subsequent Advance” Approach to Subsequent New Value May Still Live in the Eleventh Circuit… and Payment of 503(b)(9) Administrative Expense Claim Held to Reduce Subsequent New Value Defense to Bankruptcy Preference
A simple statement of the April 28, 2010 holding in TI Acquisition, LLC, v. Southern Polymer, Inc. 2010 WL 1993848 (Bankr.N.D.Ga.), may paint the decision as adverse to creditor interests. Certainly, Judge Mary Grace Diehl held that “new value” paid as a 503(b)(9) administrative expense is unavailable in a “subsequent new value” defense to a bankruptcy preference claim. However, this holding is overshadowed
Can Pre-Petition Deliveries Provide a Bankruptcy Preference “New Value” Defense and Section 503(b)(9) Administrative Expense?
Does a supplier have to choose between asserting a subsequent new value bankruptcy preference defense and making a Section 503(b)(9) administrative expense request? Judge Marian F. Harrison of the Bankruptcy Court for the Middle District of Tennessee held on January 7, 2010 that a supplier does not have to choose. In the memorandum decision In re Commissary Operations, Inc. — B.R. —-, 2010 WL 99036 (Bkrtcy.M.D.Tenn.), Judge Harrison ruled that deliveries entitled to Section 503(b)(9) claim status are not disqualified from constituting new value for purposes of the subsequent new value defense to a bankruptcy preference claim.
Bankruptcy Preference Subsequent New Value Defense
The subsequent new value defense is perhaps the most frequently-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.
We have posted a brief video in which we review the “subsequent new value” defense.
- The “Zone of Information” that applies to this defense
- The basic elements of the defense
- A simple example of the application of the defense
Click this link to see the video Bankruptcy Preferences – Subsequent New Value Defense.