Opinion ID: 479412
Heading Depth: 1
Heading Rank: 5

Heading: Gateway's 547(c) Defenses

Text: 78 The trustee's second argument on his cross-appeal is that the district court erred in finding that Gateway had extended Prescott new value during the preference period. The district court held that Gateway could not be deemed to have benefited from Marine's receipt of the certificate of deposit on March 17 because it afterwards advanced new credit worth over $96,500. 5 The court determined that this credit was unsecured as required by 11 U.S.C. Sec. 547(c)(4) because Gateway was unsecured on its total advances to Prescott by at least $600,000. 79 As we noted earlier, the theory behind the subsequent advance exception to the trustee's avoiding power is that to the extent unsecured new value is given to the debtor after a preferential transfer is made, the preference is repaid to the bankruptcy estate. The creditor that raises a subsequent advance defense has the burden of establishing that new value was extended, which remains unsecured and unpaid after the preferential transfer. See In re Saco Local Development Corp., 30 B.R. at 861. What is important is that the new value be unsecured, not that the creditor in general be unsecured. As the court explained in In re Formed Tubes, Inc.: 80 If the creditor obtains a security interest to secure payment of the new value or is paid for the new value by the debtor, there is in effect no return of the preference and the section 547(c)4 defense is not available to the creditor. 81 46 B.R. at 647; see also In re American International Airways, Inc., 56 B.R. 551, 554 (Bankr. E.D.Pa.1986). Here, while Gateway was generally an unsecured creditor, it retained a purchase money security interest in the $96,500 worth of inventory advanced after March 17. The new inventory was therefore secured. On the liquidation of Prescott's estate, Gateway presumably would retake possession of that inventory and nothing would be left for distribution to the general creditors. Therefore, the requirements of section 547(c)(4) have not been fulfilled, and the district court's finding of new value must be reversed.