## Facts

- Qualia Clinical Service, Inc. provided clinical research services and generated accounts receivable from customer invoices.
- Qualia and Inova Capital Funding entered an Invoice Purchase Agreement (IPA) in December 2007 under which Inova advanced funds against invoices submitted through an online system and then attempted to collect from Qualia’s customers.
- The IPA included a “Full Recourse” provision requiring Qualia to repay Inova the full face amount of any invoice Inova could not collect.
- The IPA also granted Inova a security interest in Qualia’s property, including accounts receivable and related collateral.
- Inova filed a UCC financing statement in Nebraska on December 12, 2007.
- Inova last extended new value by purchasing invoices on February 5, 2009.
- Inova filed a UCC-1 financing statement in Nevada (Qualia’s state of incorporation) on February 19, 2009, within 90 days before Qualia filed for bankruptcy on March 18, 2009.
- The case converted to Chapter 7, and the trustee sought to avoid Inova’s lien as a preferential transfer.

## Issues

1. Whether the IPA was a true sale of accounts receivable or, in substance, a secured financing arrangement.
2. Whether the trustee could avoid the Nevada UCC filing as a preferential transfer under 11 U.S.C. § 547(b).
3. Whether 11 U.S.C. § 547(c)(5) barred avoidance because Inova allegedly did not “improve its position” during the 90-day preference period.

## Decision

- The Eighth Circuit affirmed summary judgment for the trustee.
- The court treated the IPA as a secured financing arrangement rather than a true sale, emphasizing the agreement’s full-recourse allocation of non-collection risk to Qualia and the broad collateral grant.
- The Nevada UCC filing within 90 days before the petition was a transfer avoidable under § 547(b).
- Section 547(c)(5) did not protect Inova because perfecting an otherwise unperfected security interest during the preference period is itself an improvement in position.

## Legal Principles

- A transaction styled as an “invoice purchase” may be recharacterized as secured financing when recourse provisions place the risk of nonpayment on the debtor and the agreement grants a security interest in the debtor’s assets.
- For preference purposes, perfection of a security interest within 90 days before bankruptcy can constitute a transfer of an interest of the debtor in property avoidable under 11 U.S.C. § 547(b) when the statutory elements are satisfied.
- The § 547(c)(5) “floating lien” defense does not shield a creditor whose position improves during the preference period; moving from unperfected to perfected status is an improvement in position.

## Conclusion

The court affirmed avoidance of Inova’s lien because the parties’ “invoice sale” operated as secured financing and Inova’s perfection in the debtor’s home state within 90 days of bankruptcy was a preferential transfer not protected by § 547(c)(5).


In re Qualia Clinical Serv., Inc., 652 F.3d 933 (8th Cir. 2011)