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that the debtor was solvent. Furthermore, noted the panel, the trustee was not a qualified expert with regard to the value of the debtor's assets, nor did he proffer his method for valuating the assets. The trustee's reliance on default notices to the debtor was misplaced, noted the panel, because the default notices were irrelevant to the debtor's insolvency. Despite the trustee's failure to prove the debtor' insolvency at the time of the transfers (for the purposes of the preference action), the fraudulent conveyance action could still have succeeded if the trustee could have established that the transfers caused the debtor's insolvency or that the debtor operated with an unreasonably small amount of capital. Nonetheless, the panel concluded, the trustee failed to meet either of these burdens. The transfers were funded by capital infusions, negating a finding that they caused the debtor's insolvency. And, the trustee's reliance on the default notices as evidence of an unreasonably small amount of capital was some evidence, said the panel, but there was also evidence that the debtor operated as a going concern and no evidence of the debtor's actual capital structure on the record to convince the panel that the bankruptcy court erred in entering judgment for the defendants.
* Sender v. Love Funeral Home (In re Potter), --- B.R. ---, 2008 WL 1735864 (Bankr. D. Colo. Mar. 2008) (Brown, J.)
No level of sorcery can hide the famous Harry Potter from the trustee's avoidance powers.
While this case has nothing to do with avoidance actions in the chapter 11 context, it is noteworthy at least for its namesake. Unlike this case, and despite the rumors to the contrary,
J.K. Rowling's next series probably will not discuss what happens to great wizards when they declare bankruptcy, pass away, and leave their spouses to fight with a chapter 7 trustee over life insurance policy proceeds. Lady Rowling has left those matters for the bankruptcy courts to discuss.
* Nisselson v. Empyrean Inv. Fund, L.P. (In re MarketXT Holdings Corp.), 376 B.R. 390 (Bankr. S.D.N.Y. Oct. 2007) (Gropper, J.)
Follow the yellow brick road. Potentially fraudulent transfers of E*Trade stock did not amount to conversion and were not "swap" agreements. The chapter 11 trustee filed this adversary proceeding seeking to avoid a series of transfers from the debtor to several investment funds (the defendants) on grounds that they were fraudulent conveyances and/or converted by the defendants. Prior to the commencement of this involuntary case, the debtor's principal sold his company to E*Trade in exchange for E*Trade stock, but the debtor experienced problems liquidating the E*Trade stock, resulting on a severe cash shortfall. To resolve this liquidity problem, the debtor entered into a series of transactions with the defendants through which the defendants eventually kept the majority of the proceeds with little or no benefit to the debtor.21 On the chapter 11 trustee's motion for summary judgment, the bankruptcy court found that the trustee succeeded in proving the debtor's requisite intent to hinder and delay creditors, and the court further held that this intent was imputed onto the defendants. Despite the requisite intent and lack of value given, the court nevertheless found a genuine issue of material fact with regard
21 The defendant's claim of right to the majority of proceeds appeared to be an array of "prepayment penalties" for some questionable loans, which the court found to be unenforceable.
