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the argument that the Transeastern Lenders could not be liable under section 550(a)(1) because they benefited from a subsequent transfer of funds from TOUSA, not from the initial transfer of liens. The court stated: "The new loan agreements required that the loan proceeds be used to pay the Transeastern settlement, and the Transeastern settlement expressly depended on the new loans. When the liens were transferred to the New Lenders, the proceeds of the loans went to the Transeastern Lenders. The Transeastern Lenders assert that the funds passed from the New Lenders to a wholly-owned subsidiary of TOUSA before the funds were paid to the Transeastern Lenders, but the subsidiary that wired the money to the Transeastern Lenders did not have control over the funds. The loan documents required the subsidiary to wire the funds to the Transeastern Lenders immediately. Although the funds technically passed through the TOUSA subsidiary, this formality did not make the Transeastern Lenders subsequent transferees of the funds because TOUSA never had control over the funds." Ultimately, the court remanded the case to the district court to consider the remedies imposed by the bankruptcy court as well as issues of judicial assignment and consolidation.
iv. In re KLN Steel Products Co., LLC, 506 B.R. 461 (Bankr. W.D. Tx. 2014).
Issue: Trustee for liquidating trust brought adversary proceeding against restructuring consultant hired to advise Chapter 11 debtors prepetition, seeking to avoid payments made to consultant as preferential transfers.
Holding: (1) Confirmed Chapter 11 plan and disclosure statement demonstrated that debtors wished to preserve avoidance actions generally for post-confirmation pursuit by liquidating trust and gave ample notice to prepetition restructuring consultant that payments made to consultant might be subject of attempted recovery by listing some of payments made to consultant as potential avoidance targets, and therefore consultant received adequate notice that $50,000 day- of-bankruptcy payment might be pursued, such that claim was preserved even though it was not listed specifically; sophisticated restructuring consultant would be well aware that such an unusual, last-second payment was likely candidate for avoidance.(2) Two prepetition payments made by Chapter 11 debtors to restructuring consultant, one paid by check and other paid in part by check and in part by wire transfer, were not made in ordinary course of business of debtors and consultant, as required for consultant to establish, under subjective standard, ordinary- course-of-business defense to claims to avoid payments as preferential transfers; no other payment made to consultant either before or during preference period was made by check, parties' written agreement specified that payments were to be made by wire.transfer, and at least one reason payments were made as they were was that debtors were short of cash and consultant knew that.(3) Prepetition restructuring consultant for Chapter 11 debtors extended uncompensated services on day on which debtors filed for bankruptcy relief, and that new value was not secured, and therefore consultant was entitled to credit against its liability for avoidable preferential transfers pursuant to new value defense to preferential transfer claims.
©2014 William L. Norton III
