On December 27, 2020, the much-anticipated Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA contains several COVID-19-related amendments to the United States Bankruptcy Code, 11 U.S.C. §§ 101, et seq. (“Bankruptcy Code”), which may impact many types of creditors. The “Bankruptcy Relief” amendments are set forth in Title X of the CAA.
The CAA contains several amendments of significance to creditors, which will be discussed in subsequent posts. This post will focus on the CAA’s amendment to Section 547 of the Bankruptcy Code, which governs the recovery of so-called preferential transfers made in the 90 day period proceeding a bankruptcy filing for the benefit of a debtor’s estate (or one-year period for an insider).
Preference Statute Amendments
The CAA amends the preference statute of the Bankruptcy Code, Section 547, to prohibit a debtor or trustee from avoiding payments made by a debtor during the preference period for “covered rental arrearages” and “covered supplier arrearages.” This amendment may apply to landlords of nonresidential real property and suppliers of goods and services.
In order to qualify: (i) the debtor and the counterparty must have entered into a lease or executory contract before the bankruptcy filing; (ii) the parties must have amended the lease or contract after March 13, 2020; and (iii) the amendment to the lease must have deferred or postponed payments otherwise due under the lease or contract.
The bankruptcy preference statute exemption does not apply to the following types of payments: fees, penalties, or interest imposed 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 filed before the sunset date.
Stay tuned for further updates on the CAA’s amendments to the United States Bankruptcy Code.