The subsequent new value defense is perhaps the most frequently-used defense. It is, from a books and records perspective, the easiest defense to prove. The focus is on the period after the potentially preferential payment.
We have posted a brief video in which we review the “subsequent new value” defense.
- The “Zone of Information” that applies to this defense
- The basic elements of the defense
- A simple example of the application of the defense
Click this link to see the video Bankruptcy Preferences – Subsequent New Value Defense.
This defense requires the supplier to prove two elements: (1) that “new value” was given by the supplier after the supplier received payment; and (2) that the supplier never received payment for the “new value”. “New Value” can be anything that creates value in the customer’s company. However, most often, it simply means that goods or services were provided after the date a payment was made.
There are some legal issues that have not been resolved regarding this defense and the scope of its application. So, even though this defense is factually the simplest, it can involve a high level of complexity from a legal perspective.
Oftentimes the customer’s bankruptcy representative will claim that this defense has already been taken into account. As in the case of the ordinary course of business defense, when such an assertion is made, there’s a good chance that the defense is being applied in the way least favorable to the supplier. The optimization of available defenses is important, as discussed in these materials as “Multiple Payments – Multiple Defenses; – Mixing and Matching.”