Eleventh Circuit Approves Paid New Value Defense to Preference Liability

Prudent trade creditors may rightly be wary of continuing to sell goods or provide services on credit to distressed customers that are headed toward bankruptcy. The risk of nonpayment is worrisome enough, but the added risk of having to return payments, received after painstaking collection efforts, as a preference is simply unpalatable.

Luckily, trade creditors can take comfort from a recent decision by the United States Court of Appeals for the Eleventh Circuit (the “Eleventh Circuit”), In re BFW Liquidation, LLC (“BFW”), that allowed paid as well as unpaid new value as a defense to a preference claim. The Eleventh Circuit’s holding will likely significantly reduce preference risk in many cases and is a solid win for the trade!