In bankruptcy, a trustee may recover preferential payments issued to creditors. Under 11 U.S.C. § 547(b) a preferential payment is a transfer made to the creditor for the benefit of the creditor, in payment of an antecedent debt, made while the debtor was insolvent, within ninety days of the petition date (unless the recipient was an “insider”), that enables such creditors to receive more than it would receive if the case were a chapter 7. An exception to the preference statute appears in 11 U.S.C. § 547 (c) (4), which provides “that even if a payment is considered preferential, a creditor may retain the payment if, after such transfer of funds, such creditors gave new value to or for the benefit of the debtor.” “New value” is defined as money or money’s worth in goods, services or new credit. This issue was recently addressed in In re ABC-Naco, Inc., 483 F.3d 470 (7th Cir. 2007). Specifically, the question addressed was: Is a decision by a software licensor not to report a default, which prevented a revocation of the Debtor’s right to use the software, new value?

As background, Softmart, Inc. resold/distributed Microsoft software to its customers. The debtor in this case, ABC-Naco, Inc., purchased hardware (running Microsoft software) from Softmart.

Under 11 U.S.C. § 547(a)(2), “‘new value’ is defined by statute as money or money’s worth in goods, services, or new credit, or release ... but does not include an obligation substituted for an existing obligation.” In re ABC-Naco, Inc., 483 F.3d 470 at 472 (7th Cir. 2007). Softmart, the software distributor, cited an Eighth Circuit Court of Appeals Case, S. Tech Coll., Inc. v. Hood, 89 F.3d 1381, 1384 (8th Cir. 1996), which held that a college’s continued use of leased real property was new value, because it generated income for the College, increasing its chances of survival, and benefitted all of the College’s creditors.

Meridian Rail Corp. purchased almost all of ABC’s assets and although the debtor did not assume and assign the contract to Meridian, Meridian continued to make all of the scheduled payments to Softmart. Softmart alleged that the $98,641.28, ABC’s last license payment, was not a preference because it provided “new value” when it refrained from reporting the Debtor’s missed payment to Microsoft, the party with the ability to revoke ABC’s right to use the licensed software. Therefore, Softmart argued that its non-disclosure allowed ABC to continue using the software rights and equipment which then were transferred to Meridian.

In addition, the buyer of the debtor’s assets, Meridian, never was the legal transferee of the contract with ABC, which is very important, because if the debtor, ABC, assumed the contract with Softmart and assigned it to Meridian, then the debtor would have been required to pay all of the arrearages to Softmart, and those payments could not have ever been preferential. See, 11 U.S.C. § 365.

The Seventh Circuit Court of Appeals affirmed the District Court’s ruling that Softmart’s non-disclosure of a default did not constitute “new value.” The Court reasoned that since Softmart did not have the authority to revoke the licenses, its forbearance from reporting a missed payment to Microsoft was not “new value.” Because of this finding, the Seventh Circuit found no need to address whether or not a license could ever constitute a “good of new value” or whether or not a creditor who does have the right to revoke a license and does not do so is, by that forbearance, providing “new value.”

Hunter

Andre Rison, former NFL wide receiver and Michigan State alum, was forced into an involuntary Chapter 11 bankruptcy following a June 6 bankruptcy court order. Last month, three creditors related to two child support cases against Rison filed an involuntary bankruptcy petition against Rison. The bankruptcy court entered the order for relief on June 6.

The creditors claim that they are owed more than $105,000 in fees and child support, including a claim of $58,435 by ex-wife Tonja Rison. Another creditor, Atlanta attorney Randall Kessler, claims that Rison owes him $46,215 in legal fees for collecting child support for Raycoa Handley, the mother of two of Rison’s children.

According to court documents, one of his former teams, the Oakland Raiders, withheld part of a severance to pay taxes and placed the remainder in escrow with a California court. The Raiders asked the California court to determine which of Rison’s creditors should receive the money.

During his 12 year NFL career, he played for 7 different teams, last with the Raiders in 2000. He last played professionally with the Toronto Argonauts of the Canadian Football League in 2004 and 2005.

Rison, who was given the nickname “Bad Moon” Rison by ESPN sportscaster Chris Berman, is no stranger to controversy. In 1994, Rison’s Atlanta mansion was burned down by his then girlfriend, Lisa “Left Eye” Lopes of the R&B group TLC. He has been arrested several times for failure to pay child support and other incidents, to include providing false information to police officers and theft. In December 2004, he was sentenced to serve jail time for failure to pay $127,000 in support to Handley.

For more information on the bankruptcy, please read the Flint Journal article at: http://www.mlive.com/news/flintjournal/index.ssf?/base/news-44/118174283720970.xml&coll=5

Ray