In Commissary Operations Inc. v. Dot Foods Inc., the U.S. Bankruptcy Court for the Middle District of Tennessee held that the value of goods delivered pre-petition to a debtor for which a creditor receives an administrative expense claim may also be applied in calculating credits under the “new value” defense to a preference action. Addressing a matter of apparent first impression, the court clarified and strengthened the new value defense available to preference defendants in bankruptcy cases, allowing preference defendants to benefit from the same shipment in these two ways.

Facts

According to the bankruptcy court’s opinion, Commissary Operations Inc., a wholesale distributor of food products and related items to chain restaurants and restaurant franchisees, filed a petition under Chapter 11 of the Bankruptcy Code on July 22, 2008. During the course of the case, more than 200 creditors asserted claims in the bankruptcy for allowance of administrative expenses arising under Section 503(b)(9) of the code. The debtor initiated proceedings against several of these creditors, seeking the recovery of alleged preferential transfers made by the debtor within the 90 days before the debtor’s filing. The creditors asserted a “new value” defense, including in that defense the amounts they were seeking to be paid as administrative expense claims. In response, the debtor sought a declaratory judgment that the creditors could not use the same invoices to support both an administrative claim under Section 503(b)(9) and a “new value” defense to a preference action under Section 547(c)(4).

Background

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