Case Type:
Case Status:
Nos. 16-1940 & 16-2094 (7th Circuit, Sep 22,2017) Published
The Seventh Circuit affirmed the rulings below to hold $1.9 million paid by the debtor pre-petition unavoidable under Code § 547(c)(4). The Court found that the Bankruptcy Court reasonably used a per diem method to allocate new value to post-payment dates because that calculation did not disadvantage the trustee seeking avoidance in light of the creditor's regular billing methods. Moreover, the debtor’s assignment of the creditor’s pre-petition debt and contract to a debtor affiliate did not comprise new value because the creditor only received incidental benefit from that assignment.
Procedural context:
Trustee and creditor took cross-appeals to the Seventh Circuit from district court ruling affirming bankruptcy court decision holding preferential transfers unavoidable.
Creditor provided telecommunications services under contract to debtor pre-petition. After a default on its secured obligations to its lender, the debtor’s principals formed an affiliate to operate the business and assigned the contract, including the balances due, to that affiliate. After the assignment, the creditor provided services to the affiliate and the affiliate passed them on to the debtor. Creditors pitched the debtor into an involuntary Chapter 7 a week after the assignment and the trustee in that case sought to avoid $1.9 million of payments made to the creditor over the course of the preference period. The creditor asserted both new value and ordinary course defenses; the trustee asserted that the new value had been “paid” because of the assignment. The opinion provides cogent discussions of both new value generally and the per diem method for allocating new value where a creditor bills monthly. The Court did not rule on the creditor's ordinary course arguments because the new value ruling made that unnecessary but, notably, the opinion references that oldie but goodie, In re Tolona Pizza Prods. Corp., 3 F.3d 109 (7th Cir. 1993) for the proposition that creditors that receive payments outside the ordinary course should not be advantaged as a result of pressuring a debtor shortly before a bankruptcy filing. In addition, while Judge Posner heard argument on this case, he retired before issuance of the ruling, leaving it for decision by a quorum of the panel.
Sykes, Posner, Easterbrook

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