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Seventh Circuit Affirms Ruling in a Telecom Company Bankruptcy Case

Southern District of Indiana, September 22, 2017 – Debtor, a telecommunications retailer paid the Defendant, one of its wholesale suppliers, roughly $1.9 million during the 90 days before the Debtor was forced into bankruptcy. The bankruptcy trustee sought to recapture those payments under § 547(b) of the Bankruptcy Code as avoidable preferences. The bankruptcy judge rejected the Defendant’s ordinary-course defense but ruled that the new value advanced by the Defendant during the preference period was sufficient enough to make the Debtor’s preferential payments unavoidable under §547(c)(4). The District Judge and the Seventh Circuit also affirmed. The Seventh Circuit concluded that the Debtor’s assignment of debt and contractual rights to an affiliate did not have the effect of repaying a creditor for new value. Further, there was no causal relationship between the Defendant’s new value and the Debtor’s debt assignment and the reasons for the assignment and assumption agreement were entirely unrelated to the new-value services the Defendant provided. Since the Defendant advanced subsequent new value that remained unpaid, the Seventh Circuit held that the Debtor’s preferential transfers were unavoidable.

Levin v. Verizon Bus. Glob., LLC (In re OneStar Long Distance, Inc.), Nos. 16-1940, 16-2094, 2017 U.S. App. LEXIS 18374 (7th Cir. Sep. 22, 2017)