Getting the Biggest Bang for Your New Value Preference Defense Buck

Summary

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The US Bankruptcy Court for the Northern District of Indiana, in In re Globe Building Materials Inc, reduced a trade creditor's preference exposure from $356,823.73 to just $9,026.57 because of the successful invocation of the new value defense. What is most interesting about the decision is the manner in which the court calculated the new value defense. The preference defendant, Seneca Petroleum Co, had agreed to sell petroleum products to the debtor, Globe. Seneca argued for the most generous calculation of new value, deducting from preference exposure all new value shipments of goods after the issuance date of the first $187,776.60 check on Oct 24, 2000, and the second $169,047.13 check on Oct 27, 2000. So the Globe court's methodology for determining the new value defense allowed Seneca to reduce its preference liability by far more than if the court had adopted the Globe trustee's less generous calculation.

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Extract

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Getting the Biggest Bang for Your New Value Preference Defense Buck

Recently, a bankruptcy court decision allowed a trade creditor to utilize the new value defense to escape most of its six-figure preference risk. The United States Bankruptcy Court for the Northern District of Indiana, in In re Globe Building Materials, Inc., reduced a trade creditor's preference exposure from $356,823.73 to just $9,026.57 because of the successful invocation of the new value defense. What is most interesting about the derision is the manner in which the court calculated the new value defense. The court allowed a larger new value offset and, therefore, a much greater reduction in preference exposure than if it had followed Globe's trustee's far less generous method for calculati...

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