A Bankruptcy Trustee may not recover payments made to a landlord concerning commercial rent arrears or to a supplier, on or after March 13, 2020, resulting from workouts before the bankruptcy filing, under new Section 547(j) of the Bankruptcy Code.
These changes were made pursuant to the Consolidated
Appropriations Act of 2021.
Congress made these changes to the bankruptcy code in an effort to
encourage commercial landlords and suppliers to engage in workouts with tenants
and customers due to the pandemic, by mandating that these payments would not
be deemed preferential, if they were made after March 13, 2020.
The new law will remain in effect for two years, ending on
December 27, 2022.
These changes to the law will prevent Chapter 7 bankruptcy
trustees from commencing preference actions against commercial tenants or
suppliers that meet the above requirements of the law.
My Law Firm has been involved in many workouts where our clients
have raised the issue of whether accommodations given to debtor(s) can be
recovered by bankruptcy trustees if those debtors later file for Chapter 7
bankruptcy.
Although the bankruptcy code did provide defenses before the law
change, such as the ordinary course of business and/or the new value exception to a
preference, these law changes now provide certainty against preference actions in
these types of workouts.
If you have questions regarding preference actions, you should
contact Jim Shenwick at (212) 541-6224 or jshenwick@gmail.com
to discuss the facts or strategies involved in those cases.
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