In a preference action, one of the most common defenses is the so-called subsequent new value (SNV) defense under 11 U.S.C. Section 547(c)(4). Under Section 547(c)(4), to the extent that a creditor gives to the debtor new value subsequent to an avoidable transfer, the defendant’s liability is reduced in the amount of such SNV. The policy behind the defense is clear. Creditors should be encouraged to continue to provide goods and services to a struggling company. Further, the defense avoids the harsh result that would arise if a debtor were permitted to recover all preferential transfers without giving credit for SNV, which the creditor provided to the debtor.
Although the concept of the defense is simple, in application, courts have been divided on whether SNV may serve a defense only so long as it remains unpaid. The U.S. Court of Appeals for the Third Circuit had stated in New York City Shoes v. Bentley International (In re New York City Shoes), 880 F.2d 679, 680 (3rd Cir. 1989), that SNV must be unpaid. However, the court later characterized this statement as dicta in Friedman’s Liquidating Trust v. Roth Staffing (In re Friedman’s), 738 F.3d 547, 550-551) (3rd Cir. 2013). Nevertheless, courts have continued to rely on New York City Shoes to require that SNV remain unpaid.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.
For questions call 1-877-256-2472 or contact us at [email protected]
