Expert Opinion - Avoidance of payment... under a revolving credit?
Contents
This paper takes the form of an expert opinion and tests a narrowly defined but principled question: can the payments made by a company in a liquidity crisis to an individual creditor be avoided in a hypothetical bankruptcy, and what significance does the creditor's security interest have for that assessment? Unlike a party submission, the ambition is not to advance a position, but to make an independent and balanced assessment of the legal position – with the uncertainties and counter-arguments that this entails.
The analysis starts from the two grounds for avoidance in the Bankruptcy Act. First, the objective rule in Chapter 4 Section 10, under which the ordinariness of the payments is tested against timing, amount and the circumstances in general. Next, the general rule in Chapter 4 Section 5, whose subjective requirements call for a close reading of exactly when the creditor's good faith ceased – here located at the point at which a rescue plan failed, rather than when it was put in place. Throughout, the separate requirements of detriment and impropriety are kept apart, and the amount subject to avoidance is calculated not as a single figure but as a range across three established models, from the floor of the segment model to the ceiling of the net improvement model.
The contribution of the text lies on two levels. Legally, in the argument that a linked lien under NSAB 2015 may constitute a qualitative obstacle to cure: since new goods are immediately encumbered by security, no unencumbered value is added to the bankruptcy estate, which is why the creditor's own security paradoxically increases the risk of avoidance instead of protecting against it. Methodologically, in the stance of the opinion – presenting the uncertainty of the calculation as a litigation risk rather than concealing it, and distinguishing the expert's sober assessment from the strategic presentation that the same material permits in a negotiation. In this way the law on avoidance of transactions emerges not as mechanical subsumption, but as a field in which the evidentiary position, valuation uncertainty and legal argumentation must be weighed together into an honestly presented range.
