issues as i see them and those are that mr chairman and i both have had extensive experience in representing trustees over the years and we both know what their abilities of a trustee in bankruptcy are and that is that they take care of the bankbooks of state to be covered preferences fraudulent transfers restore the state just i have a couple specific questions and if i understood the facts right now i'm not sure that i do alf's well we've seen evil both from the bankrupt four hundred eighty six thousand dollars that's two hundred thousand dollars face value of receivables  court said house has to give it back right so at this point alf is now out one hundred eighty six thousand plus one hundred sixty three thousand for the receivables basically it's paid for him twice that's right if i got that right absolutely absolutely so the idea is discords the money from the receivables but they already paid for the receivables bankrupt got the money exactly right so what status is your proof of klein and then judge i mean if you we know what they're going to get so they'll get very little i don't think they've been paid anything so far so there's no distribution but the assets i take it at least on paper thus far  creditors one hundred percent of their clients that's correct to have any idea i know this is a little bit off the record but it helps me put it in context any idea what percentage that the unsecured creditors will al it's hard to say that in some time but i would say more in the range of twenty back ok right so the the issue though as i see it is that there shouldn't be any windfall to the state because mr ouse paid dollar for dollar and that was one of the things that the bankruptcy court did not tell me something else now yes i'm wondering why it's not horrible and if it is horrible whether there are some equitable provision that says even transaction in other words under section five forty nine and section five fifty upon which the trustee relied it's only avoidable if there's been a give me an issue or depletion of the estate but the section doesn't say man who had bought these accounts made the one eighty six i think it was to use and then he recovers whatever he can get on him and he's got the accounts left the maximum amount the estate would have been damaged would have been about fourteen thousand dollars that's correct and you would think well then you give a judgment in favor of the estate for fourteen thousand that we treat these accounts as if they were all one hundred percent collected that's correct and everybody even and if you are clean equitable can i just i don't think i can see the logic of that but both of the bapi and the bankruptcy court commented on the fact that he couldn't make a loan to the state of more than one hundred thousand dollars if you categorize this is a loan he's violated that order and i think at one time he asked a mission to buy accounts of the estate did he not you know that's not correct he did not the he went to the court and asked permission to loan the debtor money which was granted up to one hundred thousand dollars a year stated he didn't ask the court to for permission to buy accounts receivable because it was believed that that was in the ordinary course of business that never came up there was never any prohibition against him knowing the accounts and every witness there isn't one  bit of evidence that every witness testified including the trustees own witness that factoring of accounts was in the ordinary course of business every single one well for distressed companies that's what they offer start up companies yes but it's you know it's not in the ordinary course of running a business that is running i guess normally you don't sell your accounts receivable i thought it was sort of a creative spirit but but  frankly even in a bankruptcy or doing a laugh and selling all of your accounts it's pretty dramatic and i don't think it can be considered in the ordinary course of business well but he didn't they didn't sell all the a few of them had a seven million dollars point that really only related to if you read the custom milling agreement to guarantee only related to the cutting logs it had nothing to do with you know it's true that mr ellis testified that he applies the guarantee against all of his to that chapter eleven with other parties so it was and evelyn gettings five or six rivers bank we just applied for appellate as a bank officer i mean a loan officer said factoring was customary in new or start up businesses and straight line was in effect a new business in certain aspects because north coast hardwoods had gone out of business straight lines with over the operations so it wasn't just new were start ups or troubled businesses it was whole industries like  that's how it works in the textile industry and it's just the routine way that things are done in the textile industry they have a vague recollection that a furniture retailer that i knew told told me that that's just how furniture works and the garment industry same way yes yes that's that's very true and banks and we factor accounts all the time i mean it's a very customary thing and for anyone not to expect that to occur is just not as i did not have their eyes open you know they just well i don't think you expected the current chapter eleven when you've gone for a loan that's what disturbed the bankruptcy court that there had been a relationship with the parties that you expect disclosure of these matters and that's why that seems to me the bankruptcy judge got upset is that he thought something else was going on here especially with ideal on the i phone to guarantee you right your i mean what not paid within ninety days the judge says yeah i know all of that the judge did not understand what factoring was and so i made a decision because he didn't understand factoring that this was a loan and that this was being done behind the courts back after the bankruptcy had already gotten going and everything should be with court approval i i don't know what was in the judge's mind but i do know what he said on the record and that that's why i based my  you don't it's hard because under five forty nine you don't get the ordinary course of business discussions as you do under five forty seven so you've got to kind of extrapolate those discussions under five forty seven but well that's what i was i was heading toward actually that's why should we adopt the rule for either five forty seven or five forty nine the diminution of space required when the text of both of the statutes doesn't require it but i think that's these gallants you know i'm not i'm not talking about this case i'm talking about the general rule of requiring the notion because the theory of it especially in chapter eleven when you have an ongoing enterprise you're trying to get postposition trying to get recover transfer oppos void in the transfer well the benefit to the estate is to keep the business operating and that's what was happening happening with the factoring of the counts the code says under chapter eleven that the debtor is entitle to position of the dissent in the baptists and basically limit the recovery why would we consider diminution of the state as a prerequisite for funding for recalling the transfer are you arguing basically look let's let's take a look at this whole deal let's let's return what was just but under your theory we wouldn't even get there because there's no diminution on the first instance like you have but i don't understand that i mean why are you taking care of with a five fifty house this is the dissent points ordinary course of business now are you going to say that mr ralph can be penalized because he he bought some lumber he bought accounts and see the difference is that he he paid a dollar for dollar cash for cash and the estate was not accounts for the value was what mr else paid for them right or maybe the value that counts was what he collected although it param he still had some left that he had collected so maybe the value was what he paid for him but maybe it wasn't so the creditor if you're looking at the vertical chest for a moment here it was like it well there's this business could collect on a percent of those accounts now maybe that's a logical to say a creditor would think he actually collected so i would imagine a lot of people pay along with yard long as they think they're going to need to buy a longer from a mock credit in the future but if it looks like it's going down the tubes then they yes the from now that's true mr chandler as you get into your argument here it occurs to me that if mr cowles was trying to play fast and loose with the bankruptcy court and engag even equitable contact it would probably not be appropriate to give him an equitable remedy of crediting him with the money that he already paid but if you're an innocent person why would that be wrong anyways when you get to that well first of all if i could start from the beginning the straight line investments was not in business before the bankruptcy northcoast hardwoods his sister corporation was it was closed down straight line investments took over all of its assets the lumber didn't move the accounts receivable then moved and six rivers national bank had a security interest as to north coast guards it was all moved to straight lying in the point of an eye on paper lumber didn't move same stacks everything was the same ledger cards for the accounts didn't change and the security agreements provide for security interest all up to five hundred thousand dollars on a rolling basis and that loan was to be secured by the m and tory the equipment and the receive a bull's eye six rivers national bank that their receive a balls were their collateral they knew that the lumber sitting there on the pile was their collateral and straight line investments acted as if it were some new and different lumber and objected to the two that proposed borrowing i'm missing something i don't actually understand how the loan relate it's it's labeled custom milling contract but the first sentence says charles de als agrees to loan money to straight line investments for the purchase of wogs in advance for cost signs cetera that is a loan agreement that agreement is not for ailes lumber as some but i don't understand what that has to do is with factoring the accounts receivable it looks like it's just a separate deal well is it in a court or the court found the bankruptcy court found a trial that the accounts were not work were actually pledge this quadrille there was a loan and the court found that from various facts one the bookkeeper mistrials bookkeeper testified that these were advances she used the word advances then she used the word  to describe these transactions mr als also had a guaranteed mr are not argue security had nothing to do with the factory agreement but that's not what mr ailes testified to a trial i don't see why the guarantee matters here it's not a guaranteed by the bankrupt estate it's a guarantee by the man whose company has failed her i have personally correct and it's a third party guarantee but it was outright purchase there wouldn't be a guarantee i don't know why not well a factor in ignoring the factors doing is buying accounts receivable at one when a lot of people pay their debts while people pay the electric company not just because they bought the electricity but because they want to buy electricity next month they don't want their lights to go out so they keep feel like a company happy lot of people walk out on debt when they don't think they have to keep the creditor happy anymore i don't i don't actually see the connection here between  argument is that that is under three sixty three in order the judge said the straight out says these people are useful to me in business i would like to loan the money to get them over this tight period the judge says  no beyond certain limits the alf's then says i really need these people in business instead of loaning the money i'll buy something from them so they'll have some kids to get past the tough times bankruptcy filing and you have a creep the titian transaction that depleted what would be there the day the bankruptcy petition was filed in a five forty nine case that is a depletion of the estate or a bankruptcy court found that mr powell was conspiring with mr gault to take over the straight line business and he was not acting equitable and the i know the bankruptcy court but it was but what what was the inequity the pile of lumber moved over to mr al's warehouse so as the trustee was appointed all the all the lumber moved to the customers of straight line investments who had been the customers of north coast guard a little so that the lumber was physically moved to house this warehouse yes was absent a finding of an equitable contact would you agree that the proper measure of damages in this case would be the return on the accounts receivable the equivalent amount i think your honor the cases are pretty clear credit for what he paid for the property even though it's supposed to transfer so is the thrust of your argument that a five fifty set off is never appropriate under when there's been a finding of a every turn of property under five forty nine i think that's right your honor i also think that the bankruptcy court found that that mr alvarez not only knew the bankruptcy but this this account dispute over what lumber was sold that created those receiving balls in other words was that the six reverse pile of lumber that was sold to the receive a ball and actually it got the image or  got so balled up they never could figure out which was which and that's why that there was a huge dispute over the receivables i think the burden on the owls is to show that it is is to show that there was as a loan when he took the money on the guarantee took the to trust on the guarantee what we took the deed of trust and guarantee well mr gault gave mr owl's a guarantee you're talking about the personal guarantee hypothetically alf's had said to the bankrupt business it's in my interest that you continue in business and the judge won't let me lend you the case you need i know you need kiddush and my personal with misguided belief is that if you just get a little cash injection now your business will be ok as that's the judge will not lend you or will not let me lend you the cash and take a security interest here's what i'm going to do i'm going to buy one for more than i need now enough lumber to take care of it for all next year and that way you get a big cash injection so he buys two hundred thousand dollars worth of lumber for cash the trustee void the transaction get the lumber back you know streamline investments was in the business of selling lumber milling lumber and selling lumber they were not in the business of generating accounts and selling them nor was alf's they they try to make the leap to a ordinary course of business this is a sale the ordinary course of business under three sixty three but notice they never get to the elements who are proving that it is an ordinary course transaction under this court's decision in the damned russell case which i've cited in the brief in that case there's two to crawl it's a two prong test to determine whether it's in the ordinary course there's a vertical which confused but one of them is what the creditors would expect and in this case the creditors would expect that the debtor would come back before the court because the  already denied the use of receiver goals working cash flow by financing so the creditors would it would indeed expect them to come back before the court or the other task is whether or not it's in the ordinary course of business between the parties this debtor had no ordinary course of business i heard mr are not just saying that this debtor sold accounts pre partition that's not true because it didn't exist pre protection it was formed but in this particular case the bankruptcy court found that the whole scheme to buy accounts was a way to obviate this court's order under three sixty four and all that and of course that's not the post petition receivables the answer's no the post petition receive a bulls if they're truly generated post petition with post fusion assets labor etc etc are not subject to the bank's security to only be the lumber in the stack and the bank could never prove which lumber was in the stack and which lumber got sold on these accounts so the bank did not get any of these solve these receive a balls out right like for example you have a lumber business and you want to sell the delivery truck out right it requires a court order or it is over voidable transfer and avoidable for a night of which i am assuming it's avoidable transfer the question is what's the remedy well and come right down to five fifty and five fifty says that you can recover the value of that transfer all my bench and go on site and debtor got that we've got a debtor in possession is a fiduciary and when the debtor in possession starts playing fast and loose with cash management the creditors can't see where the money's coming from or where the money is going and  that is a huge problem and had they come to the court and asked the court for these specific authority this sell this account then the court could have instituted appropriate safeguards well worth any pile laid at the court's order that i think i think the question as i understand i understand that argument but i think i think the problem i have with the case and the one i'm i'm mulling over is the seeming to me because it's not an equivalent situation this state there's no evidence that the a stake had any that are you one way or the other on rights why should why should we say that you get a sensually a double recovery  from the voidable transfer well i don't think you're getting the double recovery i think is george klein pointed out in his concurring opinion that the predator owls has a secure petition the bank did it legally mr als did it contrary to a court order but yet mr alice gets more than the bank why should we care about the bank they're not a party and a crusty does not represent the interests of the thanks to reason john or three sixty four he couldn't do it because the court said no no longer under the law in excess of one at that under three sixty three he could only do it if it was within the ordinary course of business unless the court should have been asked to for permission because it was not it doesn't meet the vertical cast and it doesn't meet the horizontal test of the down russell case to be within the or did it seem so you've just in effect made an argument for your adversary by saying the court believed it had ordered otherwise the court evidently did believe it had ordered otherwise only it had not ordered otherwise at the court said don't do away so alf's and the bankruptcy estate say ok we cannot do way so we will do b which the court did not speak to and the court said i believe i ordered otherwise that you couldn't do it only if it didn't but if the court ordering otherwise under three sixty three is only important if a sale of accounts receivable is in the ordinary course of business under the test of dan russell which is that we ask you something about ordinary course let's take over some of these companies were chatting about earlier furniture and textile companies garment industry companies that their business is selling ladies clothes or half so close to or something like that the way they finance themselves routinely is by factoring their receivables their assets and i think that factoring has to do with post petition financing and every case i have ever seen ever been involved with requires a post petition order hold on i don't think i made my question clear to  company furniture retailer had i guess a new one of these so it's easy for me to construct a hypo at they sell furniture nothing down and you can pay over the course of a year or even two or three years in after only small instalments at their prices are kind of high because this is how people buy furniture from them what they what happens after they have a happy customer leave the store is they now have one less sofa on the floor and they have no money and they don't have money to buy another sofa and they don't have money to pay their bill or their help a whole lot less than what the customers actually pay but they keep the cash flowing every month and it is ordinary course of limits to the customers who come in saturday and buy a sofa or does it also include their routine method of fighting there which is to sell the paper the customers give them well your honor i think you have the same problem in the automobile industry with foreign agreements which is a financing agreement as well and you have that the same generally the furniture business my experience is it's a it's a it's recourse paper so they sell the paper newer start up business and what happened was that securities bank had a meeting with mr gold put it but isn't the essence of this a bit different i mean maybe accepting your point that it might be used but when you're doing start up financing a find that you know the that this was not in the ordinary course of business because the transaction given the history of what happened in this court was really a loan it's a financing arrangement and therefore whether it's start up companies are not unique or permission to do that is not what made the bankruptcy judge matsch in this case i think what what happened was that there was some mix up between north coast hardwoods and straight line investment as do you know the accounts receivable six rivers bank never had a security interest receivables but there was some question about where they came from and so when mr alice went to the court and asked for permission along the debtor up to five hundred thousand dollars and the court limited him to one hundred thousand as you may just be cracked or go and not legal my experience is when you deal with people who are under some kind of court order whether they're bankrupt or infants or this could be the state's or whatever you say mother may i no matter alaska and he he testified i believe that he had factored loans with the federal government and the state government up there of in excess of four hundred million dollars so i mean he was an experienced and factory and i think he y bar really a bunch of the educated guys i mean are good lawyers and you argue well and you know your subject and it's a pleasure to hear from even doing this mr chairman i for many many years it's always a treat to deal with the bankruptcy far