A U.S. Circuit Court of Appeals Sweetens Creditors' New Value Preference Defense

Creditors dread spending the time and expense necessary to defend preference claims. Fortunately, creditors can take solace from the array of defenses that can reduce their preference liability. One of the more frequently invoked preference defenses is the new value defense in Bankruptcy Code Section 547(c)(4). A hotly contested issue is whether the new value defense includes both paid and unpaid new value, or is limited to just unpaid new value?

On August 14, 2018, the United States Court of Appeals for the Eleventh Circuit, in William S. Kaye, Trustee of BFW Liquidating Trust v. Blue Bell Creameries Inc., joined four other U.S. Circuit Courts of Appeal in ruling that the new value defense includes both paid and unpaid new value. This issue is critically important to trade creditors as their ability to include paid, as well as unpaid, new value in support of their new value defense can significantly reduce their preference liability.