Crumpton v. Stephens (In re Northlake Foods, Inc.)
- Summarized by Richard Corbi , Otterbourg P.C.
- 11 years 8 months ago
- Citation:
- Case No. 12-15603 (11th Cir. May 6, 2013)
- Tag(s):
-
- Ruling:
- The Eleventh Circuit Court of Appeals AFFIRMED the District Court ruling that AFFIRMED the Bankruptcy Court's ruling that the issuance of dividends to a debtor's shareholder to offset tax liability after an S corporation election was valid and not a fradulent conveyance pursuant to sections 544, 548, 550 and 551 of the Bankruptcy Code.
- Procedural context:
- The Bankruptcy Court dismissed the complaint holding that the cash dividend was created under the shareholders agreement and as a result, the 2006 transfer satisfied an antecedent debt. In addition, the Bankruptcy Court held that the Debtor received reasonably equivalent value for the transaction because with the S - corporation status, the Debtor would have had to pay the income tax direclty.
- Facts:
- A provision in a shareholder agreement for Northlake Foods Inc., (the "Debtor") a Georgia corporation that 150 Waffle House restaurants in Georgia, Florida and Virginia, provided that should the corporation's income ever become payable directly by its shareholders and not the corporation, a special dividend would be distributed to those shareholders to offset their tax liabilities. On its 2005 federal income tax return, the Debtor filed as an S corporation, making its shareholders, including Richard Stephens, personally liable for the Debtor's income taxes. Stephens' liability amounted to $94,429, an amount he recouped in 2006 when the company issued him cash dividend payments pursuant to the shareholder agreement. In September 2008, the Debtor filed for chapter 11 bankruptcy in the Middle District of Florida. In January 2009, a bankruptcy trustee was appointed who later filed a complaint claiming that the 2006 cash dividend was a fraudulent transfer pursuant to sections 544, 548, 550 and 551 of the Bankruptcy Code. The bankruptcy trustee alleged that the cash dividend was a fraudulent conveyance because (1) at the time of the transfer the Debtor was insolvent and (2) the Debtor did not recieve reasonably equivalent value.
- Judge(s):
- Tjoflat, Martin and Jordan
ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!
