In an excellent decision for preference targets, the Eleventh Circuit recently held in the case of Kaye v. Blue Bell Creameries, Inc. (In re BFW Liquidation, LLC) that the new value defense, under Section 547(c)(4), does not require new value to remain unpaid.

In reaching this conclusion, the 11th Circuit has found common ground with the Fourth, Fifth, Eighth, and Ninth Circuits which also reject the idea that § 547(c)(4) requires new value to remain unpaid.

This opinion should result in a meaningful reduction of preference exposure for vendors and others that continue to extend credit and transact business with financially troubled debtors.  In fact, vendors may be incentivized to continue extending short-term credit without fear of having all the payments they receive for newly delivered goods clawed back.

Yet another benefit (for practitioners) – complicated “remains unpaid” preference analysis spreadsheets will soon be distant memory (at least in the 11th Circuit).  Thank you 11th Circuit!

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.