Lange v. Inova Capital Funding, LLC (In re Qualia Clinical Serv., Inc.), No. 11-1201, 2011 BL 222786 (8th Cir. Aug. 30, 2011) The United States Court of Appeals for the Eighth Circuit affirmed a bankruptcy court’s ruling avoiding a creditor’s lien recorded in a debtor’s receivables during the preference period as a preferential transfer under 11 U.S.C. § 547(b). In so ruling, the Eighth Circuit rejected the creditor’s reliance on the "improvement in position" defense in 11 U.S.C. § 547(c)(5) and, particularly, its assertion that the lien did not improve its position because the value of the receivables exceeded the amount advanced. Alternatively, the Eighth Circuit resolved that the "improvement in position" defense presupposes that the creditor held a perfected lien prior to the preference period and provides that a creditor which enters the preference period without a perfected lien is deemed to have an interest of zero value for purposes of § 547(c)(5).
Inova Records a Lien in Debtor’s Accounts Receivable during the Preference Period
Bankruptcy Court Concludes Inova’s Lien Was an Avoidable Preference
Overview of the "Improvement of Position" Defense under § 547(c)(5)
Eighth Circuit Rules "Improvement in Position" Defense Presupposes a Perfected Lien
To view additional stories from Bloomberg Law® request a demo now