In an important new ruling, the 11th Circuit Court of Appeals clarified the process for analyzing a creditor’s subsequent new value defense to a preferential transfer under Section 547(c)(4) in a debtor’s Chapter 11 case. The court rejected the “remains unpaid” standard, which is good news for creditors who desire to continue doing business with financially troubled entities, as the ruling gives them an even more robust subsequent new value defense and reduces the amount that a bankruptcy trustee can claw back. If you are a creditor of a business that has filed for Chapter 11 bankruptcy, you obviously want to keep all payments to which you are entitled, so you should be sure to put experienced South Florida bankruptcy counsel on your side to protect your interests.
The case that spawned the ruling involved a struggling chain of supermarkets with locations in Florida and Alabama, and the well-known ice cream maker that sold its products to the supermarket on credit. In 2008, amid liquidity problems, the supermarket began paying the ice cream vendor only once a week instead of twice and began delaying some payments by a week or more.
The supermarket was not successful in addressing its liquidity problems and filed for Chapter 11 on February 5, 2009. The bankruptcy trustee filed an adversary action against the ice cream company, seeking to avoid certain payments the supermarket had made to the ice cream vendor. The $563,000 sum the trustee sought represented the total amount that the supermarket paid to the vendor during the 90 days immediately preceding the bankruptcy filing. During that same 90-day period, the vendor made $435,000 worth of new deliveries on credit.