Adam Law Group Blog

The 11th Circuit Clarifies “New Value” Defense

 

If you are new to the bankruptcy process, you might never have heard of the “new value” defense that applies in situations in which a company is providing goods to the party that declares bankruptcy on credit at a periodic rate and paid the company in the preference period, or the 90 days leading up to filing for bankruptcy. This defense often helps companies who are owed money ultimately lower the amount to be paid during the preference period. In many situations, however, establishing the “new value” is particularly complicated, which is why many individual who are navigating the bankruptcy process find it particularly helpful to obtain the services of a seasoned attorney. It is also important to understand a recent Eleventh Circuit decision by which a creditor is able to assert a “new value” defense.

How the Case Arose

The case involves Kaye v. Blue Bell Creameries in which Bruno’s Supermarkets filed a chapter 11 bankruptcy. Blue Bell Creameries was one of Bruno’s suppliers and made periodic deliveries to Bruno’s. Bruno’s paid Blue Bell twice a week for the deliveries. After Bruno’s experienced financial problems, it went to a once a week delivery schedule but sometimes paid Kaye at less frequent intervals. During its bankruptcy proceedings, Bruno’s filed a proceeding with Blue Bell to recover $500,000 in payments that had been made in the “preference period” or the 90 days before the Bruno’s declared bankruptcy.

The question presented in the case was whether Blue Bell was allowed to keep the money paid during the preference period because Bruno’s had a tendency to not always make payments on time. Because Blue Bell delivers its products on unsecure short term credit, other potential defenses were unavailable. While Bruno’s argued that Blue Bell was only entitled to a small amount of the $500,000, Blue Bell argued that it was entitled to the full amount. When the bankruptcy court held that Blue Bell was only entitled to a small amount, Blue Bell appealed to the Eleventh Circuit.

The Eleventh Circuit’s Decision

After reviewing the case, the Eleventh Circuit issued a decision siding with Blue Bell. In its opinion, the court noted that there is not any requirement that a new value provided by a creditor stays unpaid. The court also acknowledged that requiring a new value in this type of vendor-debtor relationship to remain unpaid would create a situation in which vendors would interpret a ruling in favor of Bruno’s to stop delivering to customers as soon as they displayed signs of financial difficulties to avoid losing preference payments. Alternatively, the court argued that vendors would interpret a ruling in favor in Blue Bell to mean that they should receive payments from financially distressed customers in cash only. As a result, the Eleventh Circuit ruled that Blue Bell should receive the payments made during Bruno’s preference period.

Speak with an Experienced Bankruptcy Attorney Today

If you are involved in a bankruptcy or preference action in Florida and required the assistance of a seasoned bankruptcy attorney who understands how to best navigate this process, contact Adam Law Group today for a free consultation. We have significant experience helping individuals navigate the bankruptcy process and will remain committed to obtaining the results you deserve.