Richards Layton & Finger
 

Effect of Post-Petition Payments on 'New Value' Defense

February 5, 2014

The U.S. Court of Appeals for the Third Circuit's recent decision in Friedman's Liquidating Trust v. Roth Staffing Companies LP (In re Friedman's), No. 13-1712 (3d Cir. Dec. 24, 2013), provides bankruptcy practitioners with long-awaited guidance on the effect that the post-petition payment of prepetition claims has on the calculation of the "new value" defense for purposes of determining preference liability.

The issue in Friedman's arose in the context of an adversary proceeding commenced by Friedman's Liquidating Trust against Roth Staffing Companies LP to recover certain allegedly preferential transfers made to Roth. Section 547(b)(4)(A) permits, under certain circumstances, a trustee or debtor to avoid as preferential payments made by the debtor within the 90 days preceding the commencement of the bankruptcy case. If a trustee avoids a transfer, it may, with certain exceptions, recover the value of the transferred property from the transferee.