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* Rocin Liquidation Estate v. UPAC (In re Rocor Int'l, Inc.), 380 B.R. 567 (10th Cir. B.A.P. Dec. 2007) (Karlin, J.)
The status of a secured creditor for the purposes of section 547(b)(5)18 was assessed at the time of the transfer, not as of the date of the petition. The defendant in this preference action was an insurance premium financier who received the last payment from the debtor within the 90 day preference period. As collateral under the financing agreement, the defendant obtained a security interest in the insurance carrier's unearned premiums. 19 As of the date of the transfer, the unearned premiums had a value in excess of the transferred amount. However, as of the date of the petition, the policy had been terminated and the value of the unearned premium had diminished to zero. At issue was the secured status of the defendant, and when that status should have been determined.20 Because of the nature of the insurance premium financier's collateral -- unearned premiums which diminish in value on a daily basis -- the bankruptcy appellate panel adopted the Schwinn approach. See Scwhinn Plan Comm. v. Transamerica Ins. Fin. Corp. (In re Schwinn Bycicle Co.), 200 B.R. 980 (Bank. N.D. Ill. 1996). Under that analysis, the defendant did not receive more through the transfer than it would have under a chapter 7 liquidation had the transfer not been made because (1) at the time of the transfer, the value of the collateral exceeded the amount of the transfer; and (2) the transfer caused the defendant to release its claim to the collateral, releasing the collateral for use to pay unsecured creditors. Thus, concluded the appellate panel, the bankruptcy court did not err in granting summary judgment in favor of the defendant because the estate could not prove an essential element of a preference action. To assess the secured status of the defendant as of the date of the petition, said the panel, would create the incentive to move up the petition date by filing involuntary petitions. But See In re Falcon Prods., supra.
* Killips v. Schropp (In re Prime Realty, Inc.), 380 B.R. 529 (8th Cir. B.A.P. Dec. 2007)
(McDonald, J.) Insolvency is difficult to prove without the 90 day statutory presumption. The chapter 11 trustee in this case was unable to produce competent evidence establishing the debtor's insolvency at the time of transfers to two insiders as preferences or fraudulent conveyances. The bankruptcy appellate panel affirmed the bankruptcy court's judgment in favor of the defendants and concluded that the bankruptcy court correctly rejected the trustee's testimony of the value of the debtor's assets because evidence of the debtor's balance sheet, on its face, demonstrated
18 That is to say, whether the alleged preferential transfer enabled the transferee to receive more than it would have received in a hypothetical chapter 7 liquidation had the transfer not been made.
19 Under the insurance policy, the debtor had the right to cancel the policy at any time and receive the balance of the pre-paid premiums which had not been earned (by the insurance carrier) as of the date of cancellation.
20
When the assessment is made determines what the defendant would have received in a hypothetical chapter 7 liquidation had the transfer not been made. On the one hand, if the defendant was secured to the extent of the payment, the creditor received the same by the payment that it would have received in a chapter 7 liquidation . If, on the other hand, the defendant was not fully secured to the extent of the transferred amount, the defendant likely would have received more by way of the transfer than it would have received in a liquidation.
