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The Court Adopts The “Receipt Date” For New Value Defense

Giuliano v. Innovative Nationwide Builders, Inc. (In re Ultimate Acquisition Partners LLP), Adv. No. 11-52633 (MFW) (Bankr. D. Del. Jan. 31, 2014)

In this Memorandum Opinion, the Honorable Mary F. Walrath denied the motion for summary judgment of defendant Innovative Nationwide Builders, Inc. filed in response to the Trustee’s preference complaint because material issues of fact existed as to the defenses it asserted.  Although denial of summary judgment on preference claims is routine, in rendering its decision, the Court in Innovativeopined on an unsettled issue within the Third Circuit – namely, how parties in a preference action can determine when a challenged transfer is made for purposes of the new value defense under section 547(c) of the Bankruptcy Code when such transfer is made by a currently dated check.

To successfully assert the new value defense under section 547(c) of the Bankruptcy Code, a defendant must prove, inter alia, that unsecured new value was provided to the debtor after the allegedly preferential transfer was made.  However, when an allegedly preferential transfer is made by a currently dated check, an issue of dispute often arises as to when such transfer was made, i.e. when the check is honored by the bank or when it is received by the creditor.  The Third Circuit Court of Appeals has yet to opine on this question other than in dicta.  In reaching its decision in Innovative, the Bankruptcy Court canvassed the decisions of other circuit courts as well as the lower courts within the Third Circuit and found that those confronted with this issue rely on the receipt date.  Consistent with those holdings (and common practice among practitioners in Delaware), the Court held that the receipt date controls, which in this specific instance allowed the defendant to assert the new value defense.  Notwithstanding, however, the defendant failed to present evidence as to the amount of new value provided to the estates, and thus, the Court denied summary judgment.