Tag: new value

Bankr. W.D.N.C.: In re Eagan- Absolute Priority Rule in Individual Chapter 11; Valuation of Minority Interests


Applying principles enunciated by the United States Supreme Court in Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 117 S.Ct. 1879 (1997), the Bankruptcy Court also found that it was appropriate to apply a minority discount when gauging the fair market value of the Corporate Holdings. To hold otherwise would give the best interest of the creditors a “punitive effect” on the Debtor by requiring payment of more than the fair market value of the assets in order to retain them. Accordingly, the plan which proposed to pay $923,161 to general unsecured claims, opposed to the $653,845 liquidated value, satisfied the best interest test of§1129(a)(7)(A).… Read More

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Bankr. W.D.N.C.: In re RTJJ- Confirmation of Chapter 11 Plan


RTJJ is the largest owner of low-income housing in Gastonia. Following first the closure of area textile mills and then the housing crash, RTJJ became unable to pay its debts and faced foreclosure by Community One, its largest secured creditor. Despite proposing a Chapter 11 plan that would have paid creditors substantially more than a Chapter 7 liquidation, Community One objected to the plan and pressed for the sale of the assets. (The Bankruptcy Court found that Community One, itself in dire financial straits and under the supervision of the OCC, was under regulatory pressures to quickly obtain cash rather than greater returns over a longer period.)

The first objection raised by Community One was that the allowance of two tardy votes of unsecured creditors was improper.… Read More

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4th Circuit: Campbell v. Hanover Insurance Co.- Earmarking and New Value Defenses to Preferences


ESA Environmental Specialists, Inc. (ESA) was an engineering firm that had various constructions projects under contract with the federal government. As such, ESA was required to obtain surety bonds to secured completion of the contracts and pay vendors and subcontractors. ESA originally obtained eight surety bonds from Hanover in 2006. In April 2007, ESA borrowed $12.2 million from Prospect Capital to fund operations. Shortly, thereafter, ESA sought seven additional surety bonds from Hanover. Hanover, however, required that ESA to obtain a Letter of Credit for $1.375 million from Sun Trust, which was accomplished on May 17, 2007, through depositing such amount in a CD with Sun Trust.… Read More

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Bankr. E.D.N.C.: Sparkman v. Johnson Concrete Company (In re Mainline Contracting, Inc.)- Indirect Transfer Theory as New Value Defense to Preference


Trustee brought a preference action against Johnson Concrete Company (“JCC”) , a subcontractor of the Debtor on several construction projects. JCC argued that the “indirect transfer” theory of the “new value” defense to preferences in § 547(c)(1), as it would have filed a claim against the payment bonds in place for the projects.

Starting from Angell v. Pennington, Inc. (In re Partitions Plus of Wilmington, Inc.), No. 06-00148-8-JRL (Bankr. E.D.N.C. Mar. 20, 2008), the bankruptcy court held that to establish a new value defense using an “indirect transfer” theory, the Defendant must show that “(1) it would have timely filed a claim against the project’s payment bond and been paid in full had it not received payment from the debtor, and (2) at the time, the debtor was still owed funds by the general contractor on which the bonding company could have asserted a lien.”

Subsequently, the 4th Circuit addressed the issue of whether a supplier could assert a §547(c)(1) affirmative defense under the “indirect transfer theory” against the debtor-subcontractor, holding that the supplier must produce evidence that the transfers were intended by both parties to be part of a “contemporaneous exchange for new value.” See United Rentals v.… Read More

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E.D.N.C.: Kiddco v. Callaway- Avoidance of Preferential Payment to Subcontractor


Jacobsen Construction entered into a contract with Kiddco to perform subcontract work on a project at Wake Technical Community College.  On May 7, 2004, Kiddco submitted an invoice to Jacobsen for $90,625.27 for grading work at the site and on June 2, 2004, submitted a second invoice for another $102,366.70.   On June 10, 2004, Jacobsen paid Kiddco $35,000 and then on June 29, 2004, Jacobsen paid another $55,625.27.   On September 24, 2004, Jacobsen filed Chapter 7, and the Trustee ultimately sought to avoid all of the payments to Kiddco as preferential payments under 11 U.S.C. § 547.  The bankruptcy court dismissed the preference action as to the June 10, 2004 payment, but held that the June 29, 2004, payment was avoidable as a preference.… Read More

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