The United States Bankruptcy Court for the District of New Mexico added its voice to the split in judicial authority on whether a lien or similar transfer can be avoided under sections 544, 547, 548 and 549 of the Bankruptcy Code where only the debtor itself may benefit from the avoidance. Judge Thuma in his recent decision in U.S. Glove, Inc. v. Jacobs (In re U.S. Glove, Inc.), AP No. 21-1009, 2021 WL 2405399 (Bankr. D. N.M.

2020 has evolved in a way no-one could have predicted, and there is still much uncertainty as to what the future looks like (particularly as a result of Government stimulus payments and rent freezes varying or coming to an end, and newly announced insolvency law reforms that will affect businesses with liabilities of less than $1 million). While the outlook is not entirely pessimistic, suppliers should be preparing themselves for all scenarios.

The Supreme Court’s Decision:

In a decision that surprised many, the United Stated Circuit Court of Appeals for the Tenth Circuit (the “10th Circuit Court of Appeals”) affirmed decisions finding that a payment made on account of a first time transaction between a debtor and creditor can qualify for the ordinary course of business defense under 11 U.S.C. § 547(c)(2).