Insolvency and Secured Transactions

Third Circuit Conclusively Answers Questions Whether Post-Petition Payments on Pre-Preition Debt Reduce A Creditor's "Subsequent New Value" Preference Defense

Contact: Andrew R. Turner; Conner & Winters, LLP (Oklahoma, USA)

Critical Vendors & 503(b)(9) Claimants Receive a Nice Christmas Present from the Third Circuit!

Addressing an issue that we have argued in preference litigation many times for clients, the U.S. Court of Appeals for the Third Circuit gave creditors a nice Christmas present on December 24, 2013, when it decided—conclusively—that post-petition payments on pre-petition debt do not reduce the amount of a creditor's "subsequent new value" defense.

Prior court decisions across the country have split on this issue.i While the Third Circuit had strongly hinted in two prior decisions that it might decide this issue in the way it ultimately did,ii its Christmas Eve decision in Friedman's Liquidating Trust v. Roth Staffing Companies LP (In re Friedman's Inc.), No. 13-1712 (3rd Cir. Dec. 24, 2013) eliminates any doubt where the Third Circuit stands.

Because the Third Circuit encompasses Delaware, this decision is of major import to larger businesses nationwide, which may often have customers or suppliers who file bankruptcy in Delaware. This decision constitutes controlling precedent on this preference issue in all Delaware bankruptcy cases.

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