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Eastern District of North Carolina Bankruptcy Court Case Regarding Fraudulent Transfer Recovery

Published June 12, 2014 by Sasser Law Firm

Eastern District of North Carolina Judge Randy Doub recently ruled against the plaintiff/trustee in a fraudulent transfer action captioned Angell v. Craft Air Services, LLC. The defendant had been paid funds by the corporate chapter 7 debtor over the 2 years prior to the bankruptcy filing for crop dusting services. The plaintiff/trustee argued that because the crop dusting occurred on farm land owned by the debtor’s principal and not the debtor that no reasonably equivalent value was received. The defendant argued that the debtor was jointly liable for the obligations and as such the payments made constituted reasonably equivalent value. To avoid payments as constructively fraudulent the trustee must prove by a preponderance of the evidence that the debtor did not receive reasonably equivalent value in exchange for the challenged payments and the debtor was insolvent. When evaluating reasonably equivalent value the focus is on the consideration received by the debtor, not on the value given by the transferee. The purpose of fraudulent transfer law is the preservation of the debtor’s estate for the benefit of its unsecured creditors. A large or significant disparity between what the debtor gave and what it received in exchanged typically precludes a finding that the debtor received reasonably equivalent value. Although reasonably equivalent value may be the satisfaction of the antecedent debt or obligation of the debtor, it is not the satisfaction or guarantee of the debt of another. Because the court found the debtor was liable based on how the account was established and maintained, reasonably equivalent value had been given and the transfers were unavoidable by the chapter 7 trustee.

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