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Delaware – Proper Date for Determining a Defendant’s Secured Status Under Section 547(b)(5) is the Petition Date and Not the Transfer Date

December 5, 2017, Delaware — Debtor Simplexity, LLC and its affiliates filed petitions for relief under Chapter 11 of the Bankruptcy Code, and the Trustee brought an adversary proceeding against Defendant  Sprint Corporation alleging that certain payments totaling $ 958,198.58 were avoidable under §547(b) and recoverable under §550.

The main issues before the court were : (1) Has the Trustee satisfied his burden for tracing under §547(b)(5), i.e., demonstrated that Sprint received more by the transfers than if the case were filed under Chapter 7; and (2) Is Sprint entitled to a new value defense for two transfers—$505,151.53 and $125,000.00—made to Simplexity?

The Court held that the Trustee bore the burden of proof under §547(b)(5) and that the proper date for determining a defendant’s secured status was the petition date. The Court’s decision was mainly influenced by the fact that the Defendant maintained a purchase money security interest. The Court held that the liquidation analysis also had to be performed as of the petition date, and the Trustee had satisfactorily traced the payments through the add-back method. Next, the Court held that the $505,151.53 payment constituted new value under § 547(c)(4). About the $125,000 payment, the Court concluded that the parties fell short of satisfying FRBP 56(a).

The Court granted the Defendant’s motion and held that the Defendant was entitled to a new value defense for the $505,151.53 payment. The cross-motion on the same issue was denied. The Court denied both the motion and cross-motion on the issue of awarding a new value defense for the $125,000.00 payment.