How do I Make a “New Value” Defense?

The “new value” defense has two factors which must be proven.  First, new value must have been given by the creditor after the debtor received the alleged preferential payment.  Second, the creditor must not have received any other payment in exchange for the new value given.  The “new value” given can be provision of goods or services or anything else that creates value for the debtor’s business.

In a recent U.S. Bankruptcy Court case, the court followed the majority of circuits in holding that an otherwise preferential payment used to pay antecedent debt may be shielded by subsequently advanced new value. In so holding, the court addressed issues related to the availability and terms of credit for businesses nearing insolvency.  There are still certain legal issues regarding the new value defense that have not been resolved in all circuits.  If we can help you defend a preference claim, please give us a call.  Thanks for sending a copy of SenneySays to your to your friends.    

AND ONE MORE THING.     It is that time of year when we need to be thinking about taxes. Although the deadline to make the current year 4th quarter state estimated tax payment is due January 15 of the next year for most states, the payment will count as a tax deduction on your federal income tax return for this year if you make the payment before the end of December.  Doing this will save you federal income taxes this year.  Let me know if you have any questions on year-end tax planning in general or any particular issues.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation



How do I Make an Ordinary Course of Business Defense?

The “ordinary course of business” defense to a bankruptcy preference claim has two requirements.  First, the liability being paid by the debtor must have been incurred in the ordinary course of business between the debtor and you.  Second, the payment must have been made in accordance with the regular practices and procedures of both parties, or the payment must have been made in accordance with normal business or industry practices.

The first requirement is generally easy to prove.  For example, if you showed that the debtor was one of your customers who regularly bought goods or services from you, the first requirement would be met.   

The second requirement is tougher to prove.  The second requirement can be met two different ways.  Proving that the payment was made in accordance with normal business or industry practices generally requires hiring an expert to write an opinion or testify that the payment in question fell within the industry standards.  Defending based on normal business or industry practices should certainly be considered.  But defending based on business or industry standards might be more costly and would limit the protected payments to those that comply with such business or industry standard.

Proving that the payment in question fell within the general payment practices of the parties involved may be easier, may be less costly and may open the door for establishing payment practices that are more flexible than the business or industry standards.  To prove that the payment in question fell within the general payment practices that the parties themselves established, several factors need to be considered including: (1) whether the amount or method of payment differed from past practices; (2) whether the timing of the payment differed from past practices; and (3) whether you took unusual collection actions or took advantage of the debtor’s financial condition.  But the most important factor is whether the timing of the payment in question fell within the range that you can establish as being part of the ordinary dealing between the parties.

One way to demonstrate that the payment fell within a “past practices range” is to create a schedule showing the date of shipment/ invoice and the date of payment over the last year or so.  If the schedule shows that all or most of the payments over the last year have been made at or about 180 days after shipment date or invoice date, then the payment in question should be protected by the “ordinary course of business between the parties” defense if the payment was made within such 180 day period.

However, there may be other factors that delay certain invoices that need to be accounted for.  For example, some debtors may hold and pay multiple invoices in batches.  This process could have the effect of showing some payments being made in 60 days after invoice, and other payments being made 120 days or longer after invoice.  This batching process obviously can distort what the real “ordinary course of business” is between the parties.  To correct for this batching, it might be necessary to calculate the date of payment after the final “batch” invoice was sent.

Another critical matter is the length of the look-back period.  One year might be long enough.  But some courts have required 3 or more years.  The focus is finding a period of time when the debtor was not in financial distress and made enough transactions to show what the normal manner of payment between the parties was. 

If we can help you defend or understand a preference claim, please give us a call.  Thanks for sending a copy of SenneySays to your to your friends.    

AND ONE MORE THING.     It is that time of year when we need to be thinking about taxes.  Deferring income to next year obviously reduces your taxes this year.  But for individuals, deferring income has the added benefit of minimizing or avoiding phaseouts of various tax breaks based on your adjusted gross income.  Year-end tax planning doesn't occur in a vacuum, and has to take account of your particular situation and goals.  Some year-end tax planning tips will be included in the next few Blogs.  Let me know if you have any questions on year-end tax planning in general or any particular issues.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

What is a Preference Payment?

Most purchase orders set forth the terms of payment.  Sometimes a down payment is expected at the time the order is placed.  Sometimes a second payment is expected before shipment.  And generally a final payment is expected within a certain number of days following receipt by the customer of the product and the final invoice.

Does this mean you always get paid on time?  Of course not.  It is not uncommon for customers to fall behind in their payments.  If you don’t charge interest on late payments, customers may decide to use you like a bank.  It is cheaper for customers to make you wait for payment than borrow money to pay you off.  And in these tough economic times, for many customers, getting a bank loan is out of the question. 

Often you have to follow up your invoice with polite reminders, late notices, collection letters, and finally threats to sue in order in order to get paid.  Worse, when you finally do get paid, you aren’t out of the woods yet.  If your customer goes bankrupt within 90 days after you received a payment, the bankruptcy trustee will often seek to recoup that payment as a “preference.”  Under bankruptcy law, the trustee has the authority to require you to return all preference payments so that such monies are included in the bankruptcy estate to be divided among your customer’s creditors (maybe including you) based on their relative priority.

There are some defenses available to the preference claim.  One defense is based on “new value” you gave to the customer in exchange for the payment you received.  Another defense is available if the payment was received in the “ordinary course of business” between you and your customer. I'll talk more about these preference defenses in the next Blog.

Thanks for sending a copy of SenneySays to your to your friends.    

AND ONE MORE THING.     Herman Cain the current GOP front-runner is advancing a new tax plan called 9-9-9 to replace the current federal income tax code.  Under this plan, individuals would pay income tax at 9% on all income with limited deductions, corporations would pay income tax at 9% and everyone would pay a national sales tax at 9%.  Details are still leaking out about the 9-9-9 plan.  What do you think of 9-9-9?  Let me know.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

How Do I Win the Battle of the Forms?

When a business is buying goods from a vendor, the buyer will issue the vendor a purchase order.  A smart buyer will generally submit the order using a purchase order form developed by the buyer.  This purchase order form will include terms and conditions favorable to the buyer. 

The vendor on receipt of the purchase order will generally respond by sending the buyer a sales acknowledgement.  This sales acknowledgement will contain terms and conditions favorable to the vendor.  Many times the terms and conditions set forth on the buyer’s purchase order will be in direct conflict with the terms and conditions set forth on the vendor’s sales acknowledgement form.  Whose terms control?  It depends.

When trying to determine whose terms control, a court may look to which terms are more reasonable, which terms reflect normal business practices or which terms have been followed by the parties in the past.  The court may also look to self-serving language in the terms and conditions themselves.  For example, the purchase order may contain language that says the purchase order is subject to all the terms and conditions set forth therein, and is only valid if the vendor accepts all such terms and conditions.

Often a larger or stronger business is in a position to tell a smaller or weaker business to “take it or leave it.”  That is, submit purchase orders on our form or we won’t accept your order.  But in any case where you have an opportunity to submit a purchase order or send a sales acknowledgment on your own form, you are wise to do so.  At the very least, you create an argument that you have not agreed to every unfavorable term contained in the other party’s form.

Give me a call if you have a dispute with a customer or vendor, or need help drafting terms and conditions for your purchase order or sales acknowledgement form.

Thanks for sending a copy of SenneySays to your to your friends.    

AND ONE MORE THING.   Ever heard of a preference payment?  When a client pays you and then goes bankrupt within 90 days, the bankruptcy trustee will often treat the payment as a preference and may sue you to recover the payment.  There are some defenses that may apply.  If you are being asked to pay back a preference, give us a call and we can discuss your defenses.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Why Do I want to have my own Purchase Order Form?

If a business is buying goods from a vendor, the business will issue the vendor a purchase order.  This purchase order will include the basic terms of the deal including: the date the order was submitted, a description of the goods being ordered, the quantity of goods being ordered, the price to be paid for the goods, the terms of payment, and the date the goods are required to be delivered.  But the purchase order should and often does include many other terms and conditions including: an indication of the mode of transportation and who is paying the freight charges, whether there are separate packaging charges, when title and risk of loss to the goods passes from the vendor to the buyer, whether warranties are being given and for how long, whether the transaction is subject to sales or other taxes, which laws govern and where venue and jurisdiction lie.

The purchase order submitted by the buyer can be on buyer's form, or it can be submitted by the buyer on a form provided by the vendor.  The terms and conditions of sale can be vastly different depending on whose form is used.  The buyer’s form will set governing law, venue and jurisdiction where buyer’s business is located.  The vendor’s form will set governing law, venue and jurisdiction where the vendor is located.  Having governing law, venue and jurisdiction where your business is located gives you a bug advantage in any dispute where the other party is located out of town or out of state.

The buyer’s form will require the vendor to extend warranties of merchantability and fitness for particular use and other warranties for a significant period of time.  The vendor’s form will disclaim all warranties or restrict the applicability of such warranties severely.  The buyer’s form will often shift packaging, freight, insurance and other charges to the vendor, while the vendor’s form will shift these charges to the buyer.  Using your own purchase order form can give you a significant advantage.

If you purchase a significant amount of goods or services for your business, you should develop and use your own purchase order form.  In this way you know the terms and conditions of each deal will be the same (you won’t be subject to different terms every time you buy goods), and you can perhaps shape the terms of the deal to your advantage.  Let me know if you need any help with preparing appropriate terms and conditions for your company’s Purchase Order.

Thanks for sending a copy of SenneySays to your to your friends.    

AND ONE MORE THING.   Ever hear of “Battle of the Forms”?  In the next SenneySays we’ll talk about what happens when buyer and vendor submit forms to each other with contrary terms and conditions.  If you have any questions about this in the meantime give me a call.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation