Unsecured Trade Creditors Committee

ABI Committee News

In re Pillowtex, Delaware Embraces the Subsequent New Value Approach

The most accessible defense to a preference claim is the “new value” defense codified at 11 U.S.C. §547(c)(4). If the requirements of §547(c)(4) are met, this defense enables a creditor to avoid preference liability where it has already received a preferential transfer by subsequently providing new value to the debtor. The new value defense need not be proven with the assistance of expert testimony and is generally subject to analysis in a trade creditor’s credit department before the claim is referred to outside bankruptcy counsel. Indeed, many claim agents and financial advisers boast of their software that calculates “new value” and incorporates into payment demands prior to the institution of preference litigation. Section 547(c)(4) provides:

The trustee may not avoid under this section a transfer—

To or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor—

(A)not secured by an otherwise unavoidable security interest; and

(B)on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor.

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