Tag: preference

Bankr. M.D.N.C.: Lanik v. Smith (In re Cox Motor Express) – Valuation for Determination of Insolvency

Summary:

The Trustee sought to recover a transfer made by the Debtor to James Smith, the principal of the Debtor, pursuant to 11 U.S.C. §§ 547 and 550(a). At issue was whether the Debtor was insolvent at the time of the transfer. The Trustee argued that based on the Debtor’s tax returns and the presumption of insolvency during the 90 days preceding the filing of bankruptcy, that the Debtor was insolvent, whereas Smith asserted that based on the scheduled value of assets and amount of liabilities, the Debtor was solvent.

Pursuant to 11 U.S.C. § 101(32)(A), insolvency is defined as a “financial condition such that the sum of such entity’s debts is greater than all of such entity’s property, at a fair valuation….” Following In re Heilig-Meyers Co. Read More

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Bankr. E.D.N.C.: Angell v. Montague Farms- Evidence of Insolvency and Reasonably Equivalent Value

Summary:

As evidence of the insolvency of the Debtor in support of a long-running preference action, the Trustee sought to introduce Affidavits from his paralegal, from the Director of Financial Services of one of the Debtor’s largest creditors, from the Examiner appointed in the case and from himself. The bankruptcy court found that there were numerous foundational and authentification issues with these Affidavits that would need to be addressed and was sufficient to deny the Trustee’s motion for summary judgment as to the Debtor’s insolvency at the time of the transfers in question.

Further, based on questions regarding whether the Debtor received any benefit from these transfers, arising from inconsistencies in the deposition testimony of James Winslow, the owner of the Debtor, the court held that there was a genuine issue of material fact with respect to whether the Debtor received less than a reasonably equivalent value.… Read More

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4th Cir.: In re Railworks Corp- Initial Transferee for Preference Recovery Cannot Be A Mere Conduit

Summary:

The Chapter 11 Trustee sought to avoid and recover as preference, premium payments that Railworks transferred made to CPG within 90 days of filing bankruptcy, which later transferred them to TIG, which provided various insurance coverage to Railworks. While CPG had physical control over the transfers it received, it held the funds in trust for TIG.

Pursuant to 11 U.S.C. § 550(a)(1), a preferential transfer can be recovered from an “initial transferee.” The Court of Appeals applied the ‘dominion and control’ test to determine whether an entity qualifies as such holding that under this test, an initial transferee must

(1) have legal dominion and control over the property—e.g., the right to use the property for its own purpose; and
(2) exercise this legal dominion and control.”

“[A] party cannot be an initial transferee if he is a ‘mere conduit’ for the party who had a direct business relationship with the debtor.” In re Se.… Read More

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Law Review: Gotberg, Brook- Conflicting Preferences: Avoidance Proceedings in Bankruptcy Liquidation and Reorganization

Abstract:

The law of preferential transfers permits the trustee of a bankruptcy estate to avoid transfers made by the debtor to a creditor on account of a prior debt in the 90 days leading up to the bankruptcy proceeding. The standard for avoiding these preferential transfers is one of strict liability, on the rationale that preference actions exist to ensure that all general creditors of the bankruptcy estate recover the same proportional amount, regardless of the debtor’s intent to favor any one creditor or the creditor’s intent to be so favored. However, preference law also permits certain exceptions to strict preference liability and gives the estate trustee discretion in pursuing preference actions.… Read More

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Bankr. E.D.N.C.: Angell v. Larabee ( In re Tanglewood Farms)- Cure Payments not in the Ordinary Course of Business

Summary:

The Trustee sought turnover of funds from the Mary Larabee, the wife of the cousin of the 100% owner of Tanglewood Farms) as prefential transfers under 11 U.S.C. § 547, 550 and 551. (Similar claims against her husband are still pending.) Prior to filing bankruptcy, Tanglewood Farms had “rigorously” made payment on a debt to Mary Larabee, but in late 2009 fell delinquent, but caught up the missed payments in the first five months of 2010.

The court found that these cure payments were not in the ordinary course of business and the the exception to avoidance of preferential payments in 11 U.S.C.… Read More

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Bankr. E.D.N.C.: Angell v. Open Ground Farm- Amendment of Complaint

Summary:

Trustee brought an adversary proceeding seeking to avoid two payments to Open Grounds Farm allegedly made by the debtor for land rent owed by the debtor’s president, James H. Winslow. Defendants answered and the Trustee sought leave to amend his complaint in two regards.

The first was to correct a misstated date in the complaint, which was an obvious and harmless error, to which the Defendant did not oppose correction.

The second amendment sought by the Trustee was to include of additional payments potential subject to avoidance under 11 U.S.C. § 548, which were identified following discovery. The court found that the amendment was not sought as a product of bad faith or undue delay and that the Defendant was on notice that such payments were susceptible to avoidance as preferences and accordingly allowed this amendment.… Read More

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Bankr. M.D.N.C.: Schafer v. Hilliard (In re Royal Tours)- Avoidance of Payments if Not for A Debt

Summary:

Lee and Patsy Hilliard were married in 1975 and both served as officers of Royal Tours. Following their separation in 2008, the couple entered into a Separation Agreement whereby Patsy Hilliard resigned her position with Royal Tours and accepted a cash payment from Royal Tours in lieu of an Equitable Distribution consisting of 108 monthly payments of $3,500.

The Chapter 7 Trustee alleged that the twelve payments made prior to the bankruptcy filing were preferences pursuant to 11 U.S.C. § 547. A trustee may avoid any transfer of an interest of the debtor in property:
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made –
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if –
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.… Read More

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4th Circuit: Campbell v. Hanover Insurance Co.- Earmarking and New Value Defenses to Preferences

Summary:

ESA Environmental Specialists, Inc. (ESA) was an engineering firm that had various constructions projects under contract with the federal government. As such, ESA was required to obtain surety bonds to secured completion of the contracts and pay vendors and subcontractors. ESA originally obtained eight surety bonds from Hanover in 2006. In April 2007, ESA borrowed $12.2 million from Prospect Capital to fund operations. Shortly, thereafter, ESA sought seven additional surety bonds from Hanover. Hanover, however, required that ESA to obtain a Letter of Credit for $1.375 million from Sun Trust, which was accomplished on May 17, 2007, through depositing such amount in a CD with Sun Trust.… Read More

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Bankr. M.D.N.C.: Ivey v. Buchanan- Filing of Proof of Claim subjects creditors to Final Judgment from the Bankruptcy Court for Fraudulent Transfer Claims

Summary:

Under the test formulated by the Supreme Court in Stern v. Marshall the court may enter final judgment in a core proceeding where “the action at issue stems from the bankruptcy itself or would
necessarily be resolved in the claims allowance process.” Stern, 131 S. Ct. at 2618. Where a defendant has filed a proof of claim, a fraudulent transfer action brought under either section 548 or
section 544 becomes a part of the process of allowance and disallowance of claims. See Langenkamp v. Culp, 498 U.S. 42, 44 (1990).

For a copy of the opinion, please see:

Ivey v. Read More

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