Courts are mixed when non-D/3rd party (i.e. parent corp.) makes payment for C’s to D language of subsequent advance § ONLY refers to when D (NOT 3rd party) makes 547(c)(4)(B) payment… thus, some courts allow C double benefit keep payment AND use … to preference liability offset Payment by check NOT the same as payment by cash (date of delivery MAY be difficult to determine) Sup. Ct. has held (Barnhill) that, for purposes, the of § 547(b) date of honor check is the date that of $$ is transfer “made”… BUT, for purposes, the of check controls § 547(c)(4) date of delivery … whether has occurred subsequent advance On 29th, C ships $100K in shoes to D… on April 1st, “bell” rings… on April 5th, D delivers $100K check to C… on April 8th, C ships $70K in socks to D… on May 1st, D’s $100K check is honored… b/c (of $100K from D to C) was on May 1st, transfer … “made” YES for (debt incurred on March 29th)… AND, antecedent debt YES preferential… BUT, b/c delivered on April 5th, AND shipment of socks on … April 8th, then defense available (b/c shipment of socks § 547(c)(4) a subsequent advance) Good policy b/c C encouraged to give to pre-bankrupt new value D… BUT, intellectually dishonest b/c (so-called) subsequent … comes before (NOT after) is advance transfer “made” protection of lenders § 547(c)(5) inventory/AR Background D (manufacturing plant) has suppliers (supplying raw materials)… D processes raw materials, creates D sells inventory… inventory to customers (account customers buy on credit, give D promise to pay Ds)… (accounts (“AR”))… collected, $$ goes to D… receivable AR BUT, D must pay suppliers (AND employees, other bills, etc.) before it … collects always a gap in time… AR thus, D borrows $$ from lender in exchange for note AND (w/ SI AAP … in D’s clause) inventory/AR…
Courts are mixed when non-D/3rd party (i.e. parent corp.) makes payment for C’s subsequent advance to D language of § 547(c)(4)(B) ONLY refers to when D (NOT 3rd party) makes payment… … thus, some courts allow C double benefit keep payment AND use to offset preference liability Payment by check NOT the same as payment by cash (date of delivery MAY be difficult to determine) Sup. Ct. has held (Barnhill) that, for § 547(b) purposes, the date of honor of check is the date that transfer of $$ is “made”… … BUT, for § 547(c)(4) purposes, the date of delivery of check controls whether subsequent advance has occurred On 29th, C ships $100K in shoes to D… on April 1st, “bell” rings… on April 5th, D delivers $100K check to C… on April 8th, C ships $70K in socks to D… on May 1st, D’s $100K check is honored… … b/c transfer (of $100K from D to C) was “made” on May 1st, YES for antecedent debt (debt incurred on March 29th)… AND, YES preferential… … BUT, b/c delivered on April 5th, AND shipment of socks on April 8th, then § 547(c)(4) defense available (b/c shipment of socks a subsequent advance) Good policy b/c C encouraged to give new value to pre-bankrupt D… … BUT, intellectually dishonest b/c (so-called) subsequent advance comes before (NOT after) transfer is “made” § 547(c)(5) protection of inventory/AR lenders Background D (manufacturing plant) has suppliers (supplying raw materials)… D processes raw materials, creates inventory… D sells inventory to customers (account Ds)… customers buy on credit, give D promise to pay (accounts receivable (“AR”))… AR collected, $$ goes to D… … BUT, D must pay suppliers (AND employees, other bills, etc.) before it collects AR always a gap in time… … thus, D borrows $$ from lender in exchange for note AND SI (w/ AAP clause) in D’s inventory/AR…
Bankruptcy_Schechter-Fall-2009.docx