In re Smith’s Home Furnishings, Inc.
United States Court of Appeals for the Ninth Circuit
265 F.3d 959 (2001)
Smith's Home Furnishings (Smith's) financed its inventory through Transamerica Commercial Finance Corporation (TCFC), giving TCFC a floating lien on inventory and proceeds without segregating TCFC's proceeds from other funds; after Smith's defaulted, TCFC liquidated the inventory and recovered more than it was owed, and Smith's Chapter 11 case converted to Chapter 7. Trustee Batlan sought to recover payments TCFC received within 90 days of the bankruptcy petition as preferential transfers, using an "add-back" method (adding TCFC's received payments to the liquidation proceeds) to argue TCFC received more than it would have in a straight liquidation; the bankruptcy court found Batlan hadn't proven a preference, and the district court affirmed.
Whether a bankruptcy trustee may establish that a floating-lien creditor received a preferential payment by simply adding the payments the creditor received to the eventual liquidation proceeds, without showing the creditor was undersecured at any point.