Averaging the value of services provided on a daily basis is a reasonable method for calculating the new value defense for a preference under Section 547(c)(2) in the absence of other evidence, according to the Seventh Circuit.
The debtor was a telecommunications retailer that purchased services from wholesale suppliers. The trustee sued a wholesaler, seeking to recover about $1.9 million in payments made during the 90-day preference period. Apart from new value and one other defense, the wholesaler conceded that the payments were preferential.
The bankruptcy judge ruled that new value gave the wholesaler a complete defense. The district court agreed, leading to another appeal, where Circuit Judge Diane S. Sykes concurred with the lower courts.
For bankruptcy nerds, the most important feature of the case involves the calculation of a new value defense. Judge Sykes explained that new value must be provided after the allegedly preferential transfer and must remain unpaid.
The wholesaler only billed the debtor once a month. There was no evidence to indicate the value of services provided from day to day. So, to calculate the defense, the bankruptcy court made a per diem calculation, dividing the month’s bill by the number of days in the month.
Upholding the complete defense, Judge Sykes concluded that using the per diem method was “reasonable” because there was “no reason to think” it “misallocated new value in any manner that disadvantaged the trustee.”
The Sept. 22 opinion also contains a discussion about the types of transfers by a debtor — other than an ordinary payment of an invoice — that will cancel out new value. Judge Sykes said, “Incidental benefit is not enough; the transfer must be for the creditor’s benefit. And the transfer must occur ‘on account of’ the creditor’s new value.”
The case could have been Circuit Judge Richard A. Posner’s last opportunity to opine on a bankruptcy appeal because he was one of the three judges on the panel, but he retired on Sept. 1. Consequently, the other two judges decided the case.
The opinion is Levin v. Verizon Business Global LLC (In re OneStar Long Distance Inc.), 16-1940 (7th Cir. Sept. 22, 2017).