Amendments To The Bankruptcy Preference Statute In The Consolidated Appropriations Act, 2021 – Insolvency/Bankruptcy/Re-structuring – United States -…

09 March 2021

Fisher Broyles

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On December 27, 2020, the much-anticipated ConsolidatedAppropriations Act, 2021 ("CAA") was signed into law. TheCAA contains several COVID-19-related amendments to the UnitedStates Bankruptcy Code, 11 U.S.C. 101, etseq. ("Bankruptcy Code"), which may impact manytypes of creditors. The "Bankruptcy Relief" amendmentsare set forth in Title X of the CAA.

The CAA contains several amendments of significance tocreditors, which will be discussed in subsequent posts. This postwill focus on the CAA's amendment to Section 547 of theBankruptcy Code, which governs the recovery of so-calledpreferential transfers made in the 90 day period proceeding abankruptcy filing for the benefit of a debtor's estate (orone-year period for an insider).

RELATED: A Primer to Defenses Raised in BankruptcyPreference Claims.

The CAA amends the preference statute of the Bankruptcy Code,Section 547, to prohibit a debtor or trustee from avoiding paymentsmade by a debtor during the preference period for "coveredrental arrearages" and "covered supplierarrearages." This amendment may apply to landlords ofnonresidential real property and suppliers of goods andservices.

In order to qualify: (i) the debtor and the counterparty musthave entered into a lease or executory contract before thebankruptcy filing; (ii) the parties must have amended the lease orcontract after March 13, 2020; and (iii) the amendment to the leasemust have deferred or postponed payments otherwise due under thelease or contract.

The bankruptcy preference statute exemption does not apply tothe following types of payments: fees, penalties, or interestimposed in the post-March 13, 2020 amendment.

This provision sunsets two years after the enactment of the CAA,but the provisions will continue to apply to bankruptcy cases filedbefore the sunset date.

Stay tuned for further updates on the CAA's amendments tothe United States Bankruptcy Code.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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Amendments To The Bankruptcy Preference Statute In The Consolidated Appropriations Act, 2021 - Insolvency/Bankruptcy/Re-structuring - United States -...