Jenner & Block

Jenner & Block Wins Appellate Victory In ABC-Naco Bankruptcy Case

Jenner & Block recently secured a victory for the Official Committee of Unsecured Creditors of ABC-Naco, Inc. before a federal appeals court, which ruled that a former vendor of ABC-Naco, Softmart, Inc., should return certain payments from ABC-Naco to the bankruptcy estate fund.

In 2001, ABC-Naco, a manufacturer of railroad parts, made payments to Softmart for Microsoft software and equipment.  Shortly thereafter, ABC-Naco declared bankruptcy.  The Official Committee of Unsecured Creditors of ABC-Naco claimed that this was a “preferential transfer” under Bankruptcy law and therefore those payments should be restored to the bankruptcy estate. While the bankruptcy court had ruled that the payments were not a preferential transfer, a district court reversed.  Softmart then appealed.

The U.S. Court of Appeals for the Seventh Circuit concluded that Softmart’s forbearance from reporting a lack of payment to Microsoft did not constitute “new value” and therefore the payments from ABC-Naco constituted a preferential transfer that Softmart must return to the bankruptcy estate.

Jenner & Block Partners Catherine L. Steege, member of the Firm’s Bankruptcy, Workout and Corporate Reorganization Practice, and Barry Levenstam, Co-Chair of the Firm’s Appellate and Supreme Court Practice, represented the Official Committee of Unsecured Creditors of ABC-Naco, Inc. in this matter.  Mr. Levenstam argued the case before the Seventh Circuit.

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