Case Type:
Case Status:
BAP No. NM-21-029 (10th Circuit, May 27,2021) Published
BAP for 10th Cir. reversed ruling of bankruptcy court (D. NM) after bankruptcy court entered defense verdict against plaintiff chapter 7 trustee on 547 and 548 claims. Post-confirmation payments by chapter 11 debtor on subordinated insider note to funders of chapter 11 exit were transfers of an interest of the debtor in property under both §§ 547(b) and 548(a). Payments were not intended to be, and were not actually, a reasonably equivalent or roughly equivalent exchange for new or other value given to the debtor. Consequently, payments were avoidable after reorganized debtor filed ch. 7.
Procedural context:
Chapter 7 trustee sued insiders for avoidance of payments received on subordinated promissory note under 11 USC 547 and 548. Following bench trial, bankruptcy court (D. NM) entered verdict in favor of defendants. Chapter 7 trustee appealed to BAP for 10th Circuit.
Debtor was an unprofitable petroleum production company that twice landed in bankruptcy. The confirmed chapter 11 plan in its first case required the Debtor to pay all general unsecured creditors in full before paying an insider note obligation. The Defendants are the Debtor’s insiders, one of whom holds the subordinated note and two of whom guaranteed the note. After plan confirmation, the Defendants lent hundreds of thousands of dollars to the Debtor so it could make its plan payments and survive as a going concern. From the borrowed funds, the Debtor paid roughly $47,000 on the subordinated note even though general unsecured creditors were not yet paid in full. The postconfirmation insider loans were not enough to keep the Debtor afloat, and the chapter 7 trustee in the Debtor’s subsequent bankruptcy case sued the insiders to recover the subordinated-note payments as preferential transfers, actual fraudulent transfers, and constructive fraudulent transfers. The Bankruptcy Court held a bench trial on the merits.
Romero, Hall, Rosania

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