Monday, January 11, 2021

The Effect of the COVID Act on the Bankruptcy Preference Laws

By Bill Siegel

The “Consolidated Appropriations Act, 2021” (“COVID Act”) effective December 27, 2020 amends Section 547 of the Bankruptcy Code and protects suppliers and landlords through agreement to defer payments made after March 13, 2020. 

Specifically, an agreement entered into on or after March 13, 2020 to defer or postpone payments under an executory contract or lease of nonresidential real property (that does not exceed the amount due prior to March 13, 2020 under the executory contract or lease terms ) is protected from a claw back under the preference statute -- so long as it does not include fees, penalties, or interest imposed after the March 13, 2020 payment deferral agreement, or include payment defaults assessed prior to March 13, 2020.

For suppliers or landlords to obtain the benefits of these protections, the parties must have:

  1. entered into an executory contract or lease;
  2. amended the contract or lease after March 13, 2020; and
  3. the amendment must have deferred or postponed payments otherwise due under the contract or lease.


 

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