Bankruptcy Court Reinforces New Value Defense to Preference Claims

In Bogdanov v. Avnet Inc. ( In re Amherst Techs. LLC ), the U.S. Bankruptcy Court for the District of New Hampshire followed the majority of circuits in holding, in connection with the defense of a § 547 preference action: (1) that “new value” is given when a creditor provides some actual value to the estate; (2) that new value need not remain unpaid in order to allow the preference defendant to offset the new value against previous payments; and (3) that an otherwise preferential payment used to pay antecedent debt may nonetheless be shielded by subsequently advanced new value. In so holding, the court addressed issues consequential to the availability and terms of credit for businesses nearing insolvency, but that continue to divide the courts of appeals.

According to the opinion in this case, the Chapter 7 trustee filed an adversary proceeding to avoid allegedly preferential payments under § 547(b) against Avnet Inc. Avnet sought to shield the payments it had received using the ordinary course of business and new value defenses of § 547(c)(2) and (4), respectively. While the court found that the payments were not made in the ordinary course of the debtor’s business, it concluded that these payments did qualify for the new value defense. In reaching this conclusion, the court joined the majority of courts interpreting the new value defense broadly in three respects: First, “new value” within the meaning of § 547(a)(2) does not require that the payments and new value exchanged during the preference period result in a net material benefit to the estate, but simply that the creditor provide actual value in the form of “money’s worth in goods, services, or new credit”; second, new value need not remain unpaid, meaning that where new value extended by the creditor is paid for by the debtor within the preference period, this does not necessarily preclude the creditor from offsetting that new value against prior payments; and third, a payment that is applied against antecedent debt may itself be shielded by subsequent new value, so long as the creditor’s “shield” is the new value defense.

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