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Preference Defendant Can Offset Preference Exposure with Administrative Claim

In re Quantum Foods, LLC, Case No. 14-10318, the Bankruptcy Court for the District of Delaware held that a preference defendant could offset its preference exposure by the amount of its allowed administrative claim for food products delivered to the debtor post-petition. The parties agreed that the administrative claim could not be used as a subsequent new value defense but the court held that the defendant could apply the doctrine of setoff in this context. The court based its reasoning on both the administrative claim and the preference causes of action arising post-petition; that setoff is not a disguised new value defense because the setoff claim does not affect defendant's preference exposure but rather, only affects the amount to be paid to the estate; and that Section 502(d) which normally disallows claims by a transferee of an avoidable transfer does not apply to administrative claims.

This is important for both our trustee clients looking to recover on preference claims, as well as our creditor clients who may face preference exposure. For the full opinion, please click here.

If you have any questions regarding the foregoing, please contact Melissa Lowe or one of the other Shulman Hodges & Bastian LLP attorneys at 949-340-3400.

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