1 

### NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: PACIFIC LINKS U.S. HOLDINGS, INC. , Debtor

. BAP No. HI

- 22

- 1191

- BCL

Bk. No. 21

- 00094

Adv. No. 21

- 90009

MEMORANDUM ∗ TIANJIN DINGHUI HONGJUN EQUITY INVESTMENT PARTNERSHIP (LIMITED PARTNERSHIP) , Appellant,

v. PACIFIC LINKS U.S. HOLDINGS, INC. ; HAWAII MVCC LLC; HAWAII MGCW LLC; MDRE LLC; MDRE 2 LLC; MDRE 3 LLC; MDRE 4 LLC; MDRE 5 LLC, Appellee s

. Appeal from the United States Bankruptcy Court for the District of Hawaii Robert J. Faris , Chief Bankruptcy Judge, Presiding
Before: BRAND , CORBIT , and LAFFERTY , Bankruptcy Judges.
INTRODUCTION Appellant Tianjin Dinghui Hongjun Equity Investment Partnership ( Limited Partnership ) ("TDH" ) appeals a judgment in favor of appellees

∗ This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 

# FILED

JUL 18 2023
SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT2 Paci fic Links U.S. Holdings, Inc. ("PLUSH"), Hawaii MVCC LLC , Hawaii MGCW LLC, MDRE LLC , MDRE 2 LLC, MDRE 3 LLC, MDRE 4 LLC, and
MDRE 5 LLC (collectively, " Debtors " ) , ruling that certain obligations and
transfers by Debtors to TDH were avoidable as fraudulent transfers under
both federal and Hawaii law. Seeing no reversible error by the bankruptcy
court, we AFFIRM.
FACT S
A. Background of the parties
Du Sha , an individual , sought to develop an international network of
elite golf courses and golf course residential communities. In this effort, Du
Sha established a global enterprise of companies under the umbrella of
Pacific Links International Company.
Debtors are among Du Sha' s companies. Debtor PLUSH is a holding company and the sole member of the othe r seven subsidiary Debtors

. PLUSH
does not conduct any indepe ndent business and does not generate i ts own income from operations. The subsidiary Debtors collectively own ed a 644

- acre mixed us ed development property located in the Makaha V alley on Oahu ( the " Makaha Propert y " )

. The parcels comprising the Makaha Property were acquired
between 2011 and 2015 for approximat ely $35 million , and the subsidiary
Debtors held title to the parcels. D ebts were incurred to acquire some of the parcels. P romissory notes for $5 million and $3.78 million were sec ured by first mortgages on those parcels

.3 From 2015 to 2019, Debtors expended upwards of $15 million towards
the development of the Makaha Property for the golf course community (the "Makaha Project"). MVCC operate d a country c lub and golf course on its parcels which produced some income but not enough to cove r its ordinary operating expenses. A second golf course already existed on M GCW 's parcels , but it had not been used since 2011. The remaining parcels were largely unimproved land that did not gen erate income but incurred expenses

. T o fund operating and development costs for the Makaha Project , Debtors regularl y received equity infusions from Asian affiliates owned by Du Sha

. Tianjin Kapolei Business Info rmation Consultancy Co., Ltd. ("TKB" ) is a Chinese limited partnership also ow ned by Du Sha. TK B is an affiliate of
Debtors but not a subsidiary. In 2017, TDH made a loan to TKB for RMB 240
million . I n 2018 , TDH agreed to extend the 2017 loan and made a n additional
loan to TKB for RMB 160 million

. Debtors were neither borrowers nor guarant ors of the 2017 and 2018 loans, and n o loan proceeds were d irectly disbursed to any of Debtors.
B. The alleged fraudulent transfers
I n 2019, nearing the 2017 and 2018 loans' matur ity date , Du Sha told
TDH that there was insufficient cash to repay the loans. Du Sha painted a rosy picture of his companies' prospects and requested an extension.
On December 11 , 2019, TKB, Debtors and certain affiliates executed a series of agreements with TDH ( "2019 Transaction"). 1 The 2019 Transaction

1 To evidence the 2019 Transaction, Debtors exec uted several documents: a4 restructured the 2017 and 2018 loans by creating a " new " loan t o TKB for the
total amount currently owed to TDH

– approximately $57 million USD

. P roceeds were used to repay the full amou nt owed to date , and TDH agreed

to extend the loan s ' maturity date

. Thus , the 2019 Transaction was in
substance on ly an extension of the maturity date of the old loans. TDH was willing to grant the exten si on only if Debtors (and others ) became obligated to repay the loans and the subsidiary Debtors granted security interests in all of their real estate to secure the loans. This was an essential inducement for, and a precondition of, TDH's willingness to enter
into the 2019 Transaction. As a result of the 2019 Transaction, Debtors became
liable for the first time to TDH for the principal obligation of $57 million

. They guaranteed 2 the debt and granted mortgages and security intere sts in all
their assets to TDH. Debtors did no t receive anything from TDH in exchange for the obligations they undertook and transfers they made , and TDH did not satisfy any of Debtors' indebted ness

. TKB failed to make the first payment due for the 2019 Transaction in January 2020. TKB also failed to pay the next payment due in March 2020

. In April 2020, after TKB had still failed to pay, TDH accelerated the debt and
demanded immediate payment in full. In February 2020, Debtors were unable to pay their real property tax installments and have continued to be

Framework Agreement; a Secured Guaranty; m ortgage documents from each of the subsidiary Debtors; and a Membership Interest Pledge Agreement made by PLUSH.

2 The operative provisions of the Secured Guaranty made clear that Debtors were not mere guarantors; rather, they were primarily and directly liable to TDH as co

- obligors with all other obligated parties.5 unable to pay taxes on all of their properties. The outstanding mortgage debt s for some of D ebtors' parcels were also not paid, and the lender obtained foreclosure judgments in N ovember 2020.
C

. Debtors' bankruptcy filing and adversary proceeding
After Debtors filed chapter 11 3 bankruptcy case s on February 1, 2021, they filed an adversary proceeding against TDH , seeking to avoid the guarantees an d mortgages they granted under the 2019 Transaction as
constructive fraudulent transfers under § 548 (a)(1)(B) and HRS § 651C

- 4(a)(2)

. Debtors later moved for partial summary judgment on the element that
Debto rs received less than reasonably equivalent value in exchange for the obligation s they incurred and the transfers they made under the 2019
Transaction

. The b ankruptcy court granted Debtors' mot ion , finding that they
did not receive reasonably equivalent value in exchange for the obligations
and transfers. The remaining issues went to trial. 4
D

. T rial on the alleged fraudulent transfers
Debtors submitted dir ect testimony declaration s from Harry Chang,
Debtors' CFO since 2016 , and Duane Seabolt , Debtors' expert witness ; TDH

3 Unless specified otherwise, all chapter and sectio n references are to the Bankrupt cy C ode, 11 U.S.C. §§ 101

- 1532, all "Rule" references are to the Federal Rules of Ba nkruptcy Procedure, all "Civil Rule" references are to the Federal Rules of Civil Procedure, and all "HRS" references are to the Hawaii Revi sed Statutes.

4 Without objection, TDH offered evidence at trial on the issue of reasonably equivalent value , so the bankruptcy court considered the issue again in its post

- trial decision. TDH does not specifically argue the issue of reasonably equivalent value on appeal. It contests only the bankruptcy court's findings as to Debtors' insolvency and TDH's good faith

.6 submitted direct testimony declarations from Xia o dong Yang , an empl oyee of the managing partner of TDH, and Garret Hoe , TDH' s expert witness

. All
four witnesses also testified at the three

- day trial. In addition, TDH offered a deposition transcript for adverse witness Du Sha. Numerous exhibits were offered by the parties. Chang testified extensively as to Debtors' finances and financial recor d
around the time of the 2019 Transaction

. He testified that in 2019 and 2020, Debtors did not generate cash flow sufficien t to pay their debts. Historically , PLUSH received equity infusions to fund operating s hortfalls of the subsidiary Debtors. Chang testified that by 2019, the annua l shortfall for the development of the Makaha Project was between $5 and $7 million. Chang testified as to the general process of the subsidiary Debtors ' request and receipt of equity infusions. A monthly 90

- day forecast was prepared. Debtors' CEO , Rudy Anderson , would then submit the 90

- day
forecasts to Vivien Zhang, CFO of the Pacific Links entities in Asia. Debtors would receive some or all of the requested funding over the 90

- day period from dep osits into a PLUSH bank account , or indirectly by payments made by nondebtor Pacific Links US Services, Inc. on Debtors' debt s

. The 90

- day
forecasts from October, November, and December 4 and 9, 2019 , projected significant revenue shortfalls ($2 million, $1.3 million, $4.12 million and $ 3.65
million , respectively ) and Debtors understood through discussions with Zhang that equity infusions would not be made in amounts suff icient to
cover the shortfalls and, eventually, would cease altogether

.7 Chang testified that the Makaha Project lacked capital as early as the
third or fourth quarters of 2019. And around the third or fourth quarter of 2019, it was decided that development of the Makaha Project would be halted
due to lack of s ufficient cash flow. The decision to halt the development of the Makaha Project was communicated by email to the project manager, S tanford
Carr , in or about December 2 019 and confirmed in January 2020. Chang testified that , as of October 2019, he understood that Debtors were having diffic ulty obtaining capital from the Pacific Link s entities in Asia to fund development o f the Makaha Project or Debtors' ongoing business. Chang also testified that a realtor was hired in October 2019 to sell t he Makaha Property for a list price of $35 million, which is what Debtors collectively paid for the parcels and what the ir t ax assessed value was at the
time

. C hang acknowledged that the sales marketing materials provided that
Debtors desired a joint venture partner as opposed t o an outright sale, but he said that an outright sale was sought from the start and no joint venture partners materialized. Chang testified that , in December 2019, Debtors we re adjusting the budgeting of development costs by deferring various expenses into the future
due to l ack o f sufficient capital. For example, a payment of $1 million was
due to a Makaha Project designer on December 1, 2019, but Debtors lacked
sufficient funds to make the payment

. The designer agreed to acc ept $500,000 payable immediately an d $500,000 on January 15, 2020. The first $500,000 was
pa id, but the second $500,000 was never paid.8 Chang testified that the 2019 Transaction left Debtors in a much worse financial position than before . Even though prior to the 2019 Transaction Debtors may have had difficulty borrowing through traditional lending institutions due to lack of cash flow, they now had excessive liability and no
unencumbered assets to offer as collateral for loans from asset

- based lenders , despite having previously had signific ant equity in the subsidiary Debtors' real properties.
As to th e cessation of development, Chang testified that c ertain development expendi tures were paid in January 2020, but payment of
additional development expenses effectively stop ped in February 2020. Also , in February 2020, manage ment employees had to take a 50% pay reduction

. Debtors did not sell any residential lots or golf memberships at the Makaha Property aft er the 2019 Transaction.
Seabo lt testified to the contents of his report and conclusion that Debtors were insolvent under all three insolvency tests. He further testified that the addition of a $57 million obligation severely hindered Debtors' ability to obtain additional borrowed or equity capital from third parties. Yang testified that TDH had loaned funds to TKB (and the related
Pacific Links entit ies) for years and that he was familiar with their loan
transactions. Yang testified that he was aware of Du Sha's request in 2019 to
extend the 2017 and 2018 loans because of a cash short age

. Yang testified that , as part of TDH's due diligence for the 2019 Transaction, TDH had a three

person team investigate the Pacific Links entities' financial situation a nd9 TKB's use of the 2017 and 2018 loan proceeds. During that investigation, TDH
learned that , between 2017 a nd the first half of 2019, RMB 130 million (about $21 million) was transferred outside of China to support Pacific Links' North American entities, the majority of which was used to pay other loans and development expenses for the Makaha P roject. Yang testified that TDH entered into the 2019 Transaction with the understanding that Debtors had
benefitted from the prior loans and that Debtors would benefit from the 2019 Transaction as well, because it would free up funds for Debtors' continued operat ions and development of the Makaha Property. Yang testified that TDH was provided with various due diligence materials, including Du Sha's personal information, Debtors' organizational structure, business model, and balance sheets , along with development plans and spending forecasts for the Makaha Project. Yang testified that the
f inancial statements provided showed that Debtors' assets exceeded their liabilities and, while TKB was expected to pay the debt in full, Debtors' assets were more than enough to cover their share if TKB could not perform

. Yang
testified that the f inancial statements further showed that TKB's projected sales proceeds and profits for 2020

- 2022 would be substantial. Yang testified that Du Sha had represented to T DH that the Pacific Links e ntities in Asia , including TKB, were very successful and that sales revenues were expected to increase year after year

. Yang testified that, in agreeing to enter into the 2019 Transaction, TDH relied in good faith on the representations made by TKB,
Debtors , and Du Sha.10 E

. The bankruptcy court' s ruling
The bankruptcy court determined that Debtors' obligations and transfers under the 2019 Transaction were constructively fraudulent an d thereby avoidable under § 548(a)(1 )(B) and HRS § 651C

- 4(a)(2 ) . While the
court found that Debt ors had failed to establish they were balance

- sheet
insolven t after the 2019 Transaction, the court found that Debtors were engaged in a business or were about to engage in a business for which their remaining property was an unreasonably small capital, and that Debtors intended to incur, and believ ed they would in cur, debts they could not pay
when due.
The court further found that TDH had not establish ed a good faith
defense because TDH knew , or should have known , that Debtors were in
financial distress at the time of the 2019 Transaction , and that the obligations Debtors undertook and the transfers they made would make their financial
di fficulties substantially worse. This timely appeal followed. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(H). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
1. Did the bankruptcy court clearly err in finding that Debtors were
insolvent under both the adequate capital test and the cash flow test ?
2. Did the bankruptcy court clearly err in finding that TDH failed to meet its burden to prove that it took the transfers in good faith?11 STANDARDS OF REVIEW
W ith respect to a bankruptcy court's decision on fraudulent transfer claims, we review its factual findings for clear error and its conclusions of law
de novo. Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102, 1109 (9th Cir. 2010)

. A bankruptcy court' s factual findings are not clearly erroneous unless they are illogical, implausible or without support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010)

. If two views of the evidence are possible, the court's choice between the m cannot be clearly erroneous. Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985). When factual findings are based on credibility determinations, we must give even greater
de ference to the bankruptcy court' s findings. Id . at 575

. " De novo review requires that we consider a matter an ew, as if no
decision had been made previously." Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014)

. We may affirm on any basis supported by the record. Shanks v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008).
DISCUSSION
A. The bankruptcy court did not clearly err in finding that Debtors
were insolvent under th e adequate capital and cash flow test s.
A debtor in possession may bring an action to avoid a prepetition transfer that is alleged to be constructively fraudulent under § 548(a)(1) (B) or applicable st ate law as provided in § 544(b) (1)

. See § 1107(a). To avoid the

tra nsfers to TDH, Debtors had to show : (1) there were transfers of Debtors'12 property ; (2) the transfers were made within two years of the bankruptcy filing; (3) Debtors received less than reasonably equivalent value in exchange
for th e transfer s ; and (4) Debtors were insolvent, made insolvent by the
transfers , operating or about to operate without sufficient capital , or unable to pay debts as they become due. Hasse v. Rainsdon (In re Pringle) , 495 B.R. 447,
462

- 63 (9th Cir. BAP 2013) ; § 548(a)(1)(B) (i)-(ii)(I)- (III)

. 5 On appeal, TDH challenges only the fourth element . S pecifically, TDH challenges the bankruptcy court's findings that Debtors had established insolvency under the adequate capital test and the cash flow test. TDH also challenges the bankruptcy court' s finding that TDH did not establish a good
faith defense under § 548(c).
1. Ade quate Capital Test
Unde r this test, also known as the "unreasonably small capital" test,
Debtors had to prove that at the time of the transfers they were engaged in or about to engage in business that would leave them with an unreasonably small capital. § 54 8(a)(1) (B)(ii)(II)

. This test denotes a financial c ondition short
of equitable or "cash flow" insolvency. Moody v. Sec. Pac. Bus. Credit, Inc. , 971
F.2d 1056, 1070 (3d Cir. 1992) ; AWTR Liquidation Tr. v. 2100 Grand LLC (In re AWTR Liquidation Inc.) , 548 B.R. 300, 312

- 13 (Bankr. C.D. Cal. 2016)

. It is

" aimed at transferees that leave the transferor technically solvent but doomed

5 Hawaii law is substantially similar. See HRS § 651C -4(a)(2). However, since the transfers at issue were within two years of the bankruptcy filing, neither Debtors nor the bankruptcy court needed to rely on Hawaii law to grant relief. Accordingly, we review the court's decision under federal law only.13 to fail." MFS/Sun Life Tr.

- High Yield Series v. Van Dusen Airport Servs. Co. , 910
F. Supp. 913, 944 (S.D.N.Y. 1995) (citing Moody , 971 F.2d at 1070 & n.22 ). In determining unreas onably small capital, courts generally examine
cash fl ow to determine whether it was reasonably foreseeable that the
transfer at is sue would lead to the debtor's " inability to generate enough c ash flow to sustain operations." Moody , 971 F.2d at 1070. In a business setting, t he aggregate amount of capital " should include .

. . all reasonably anticipated sources of operating funds, which may include new equity infusions, cash from operations, or cash from secured or unsecured loans over the relevant time per iod." Id. at 1072 n.24 (quoting Bruce A. Markell, Toward True and Plain Dealing: A Theory of Fraudulent Transfers Involving Unreasonably Small Capital , 21 Ind. L. Rev. 469, 496 (1988) (citing cases)). The bankruptcy court found that , before the 2019 Transa ction, Debtors were operating at a shortfall with a very small chance of obtaining sufficient equity either from their operations, equity infusions from affiliates, potential
sales , or possible loans for their continuing business operations

. The court
foun d that equity infusions or loans were the only realistic sources of funding. As for equity infusions , the court found credible Chang's testimony
that Zhang informed him in either the 3rd or 4th Quarter of 2019 that the equity infusions to Debtors were declining and , just after the 2019 Transaction, were stopping altogether . A s for any loans, before the 2019
Transaction Debtors' assets were worth substantially more than their debts.
While Debtors might have been able to obtain loans based on this equity, the14 court found that the ch ances were small because they had almost no cash flow with which to service any new debt. T he 2019 T ransaction added $57
million secured debt to D ebtors ' balance sheets , which the court found eliminated most, if not all, of Debtors ' equity in the properties and extinguished any faint hope they might have had of obtaining new financing to fund their operational and development needs. The c ourt concluded that
the cessation o f equity infusions along with the fact that Debtors ' assets were fully encumbered by the mortgages satisfied the adequate capital test

. TDH argues that the bankruptcy court erred in finding that , prior to the
2019 Transaction , equity infusions w ere decli ning and that Debtors no longer anticipated any future equity infusions. TDH contends the bankruptcy court disregarded the weight of the evidence, which according to TDH, indicated
that on December 11, 2019

– the closing date fo r the 2019 Transaction

– Debtors had no reason to anticipate that equity infusions in amounts
sufficient to meet their operating shortfalls , consistent with historic practice , would end

. TDH asserts that Chang' s testimony was too vague; he could not pinpoint when he was told the equity infusions would cease , only that it was in the 3rd or 4th Quarter of 2019, and his hearsay 6 testimony wa s not supported by any documents or other evidence. TDH argues , the only
reasonable inference that can be drawn from Chang' s testimony , when

6 Before trial, TDH raised a hearsay objection to Chang's declaratory testimony as to what Zhang told him about the timing of the cessation of the equity infusions. However, TDH solicited this same testimony from Chang on cross

- examination at trial. Therefore, its argument that the bankruptcy court erred in admitting this testimony is not well

- taken.15 considered with the totality of the evidence , was that discussions concerning both halting development and withholding future equity infusions happened
after December 11, 2019. Therefore, argues TDH, neither i t nor Debtors knew
or could ha ve known these facts before that date.
TDH 's arguments are essentially an improper invitation for us to reweigh the evidence , and they also ignore the key findings on which the bankruptcy court based its determination that Debtors were insolvent under the adequate capital test. Chang and Seabolt both testified that only one of the subsidiary Debtors, MVCC, generated any operating income , and it was insufficient to cover its own operating expenses let alone the operating
expenses of the other Debtors or any development expenses

. Chang and
Seabolt both testified that Debtors' operations relied entirely upon the equity
infusions from affiliates. Chang testified as to Debtors' projected operating
shortfalls for October, November , and December 2019

. Chang also testified
that , according to Zhang , future inflows from a ffiliates were coming to a stop beginning in the 4th Quarter of 2019 . Given that timeframe, it is more likely
than not that the equity infusions would stop before December 11, 2019

. In addition, an e mail communication dated October 17, 2019 , between
CEO Anderson and management, including Chang , revealed that at the time
there were significant political pressures in China to control the f l ow of funds
to offshore investments such that Deb tors anticipated difficulty in receiving
future equity infusions from a ffiliates . The lack of future equity infusions is
what informed Debtors ' decision to halt development and engage a realtor in16 October 2019 to assist with the Makaha Property , by either obtain ing joint venture partners or sell ing

. We perceive no clear error in the bankruptcy court's finding that the equit y infusions began to decline bef ore the 2019 Transaction and ceased
soon thereafter. Its analysis of the evidence was plausible and supported by inferences that may be drawn from the facts in the record. While the record may contain facts supportive of alternate inferences, the bankruptcy court was in the best position to evaluate the documentary and testimonial
evidence. In addition, the 2019 Transaction encumbered all of the subsidiary Debtors' assets, making it impossible for them to obtain any other loans to
sustain o perations. Accord ingly , it was not error for t he bankruptcy court to
conclude that , at the time of the 2019 Transaction , Debtors were engaged in or
about to engage in a business for which they had unreasonab ly small capital.
2. Cash Flow Test
Under the "cash flow" or "equitable" insolvency test, Debtors had to
prove that at the time of the transfers they intended to incur or believed that they would incur debts beyond their ability to pay as they came due. § 548(a)(1)(B)(ii)(III). This prong is satisfied " if it can be shown that the debtor made the transfer or incurred an obligation contemporaneous with an intent or belief that subsequent creditors likely would not be paid as their claims
matured." WRT Creditors Liquidation Tr. v. WRT Bankr. Litig. Master File Defendan ts (In re WRT Energy Corp.) , 282 B.R. 343, 4 15 (Bankr. W.D. La. 2001) ;

see EBC I., Inc. v. Am. Online, Inc. (In re EBC I, Inc.) , 380 B.R. 348, 359 (Bankr. D.17 Del. 2008), aff'd , 400 B.R. 13 (D. Del. 2009), aff'd , 382 F. Ap p'x 135 (3d Cir. 2010) (same). " While the statute suggests a standard based on subjective intent, the courts have held that the intent requirement can be inferred where the facts and circumstances surrounding the transaction show that the debtor could not have reasonably believe d that it would be able to pay its debts as they matured." 5 COLLIER ON BANKRUPTCY ¶ 548.05[3][c] (Alan N. Resnick & Henry J. Sommer, eds., 16th ed., 2012 ) (citing cases).
TDH argues that the bankruptcy court erred in concluding that Debtors intended to incur or believed they would incur debts beyond their ability to pay as they became due. TDH contends that the court erred in its evaluation
of whether Debtors intended to incur debts beyond their ability to pay by
fo cusing solely on Debtors' o bligations

– proper ty taxes and the promissory

notes

– and not consider ing that Debtors still anti cipated the equity infusions to meet those obligations at the time of the 2019 Transaction. The bankruptcy court' s findings pertaining to the cash flow test generally hinged on the same findings it made in concluding that Debtors

were insolvent u nder the adequate capital test. The court found that , due to the lack of equity infusions, when Debtors ent ered into the 2019 Transact ion they intended to incur and believed they would incur debts that they could not pay when due

. For the same reasons we conclude d that the court ' s findings that D ebtor s were insolvent under the adequate capital test were not clearly erroneous, we similarly conclude that its insolvency findings with respect to the cash flow te st were not clearly erroneous.18 TDH also challenges what it calls the court's "equitable magnitude finding ." TDH maintains the court erred in find ing that Debtors would have
had to anticipate $57 million in new equity or lot sales within a year ( the expiration of the extended loan) to prevent Debtor s' insolvency rather than
the smaller amounts sufficient to pay operational costs. Besides the court's

erroneous assertion that the loan was extended for only one year when it was actually three years (with an additional extension option of one year ) , the
court's statement which TDH is referring to here was not related to its findings as to Debt ors' insolvency. Rather, this " cherry -picked" statement
went to the court's finding that Debtors did not receive reasonably equivalent
value for the obligations and transfers they made under the 2019 Transaction, which TDH has not challenged on appeal.
B. The bankruptcy court did not err in find ing that TDH failed to meet its burden to prove that it took the transfers in good faith.
Section 548 permits a good faith transferee to retain funds fraudulently
transferred to the extent that the transferee gave value to the debtor in exchange for the transfer. § 548(c). Th e good faith standard here features an objective component. Cour ts look to what the "transferee objectively knew or should have known . . . rather than examining what the transferee actually knew from a subjective standpoint. " Hayes v. Palm Seedlings Partners

- A (In re Agric. Rsch. & Tech. Grp., Inc.), 91 6 F.2d 528, 536 (9th Cir. 1990) (cleaned up)

.

" In other words, a transferee does not act in go od faith when he has sufficient knowledge to place him on inquiry notice of the debtor's possible19 insolvency. " Brown v. Third Nat'l Bank (In re Sherman) , 67 F.3d 1348, 1355 (8th Cir. 1995) (citations omitted); see also Gill v. Maddalena ( In re Maddalena ), 176
B.R. 551, 556 (Bankr. C.D. Cal. 1995) (reasoning that "a t ransferee's knowledge
of , or a reasonable cause to suspect , the transferor's insolvency may be inconsistent with good faith")

. The burden of proof for the good faith defense
is on the transferee. In re Agric. Rsch. & Tech. Grp., Inc., 916 F.2d at 535. TDH argues that the bankruptcy court erred in finding that it knew or
should have known that Debtors were in financial distress and that the 2019
Transaction would make their financial condition much worse. TDH
contends the record contained insufficient evidence to establish that it knew or should have known of Debtors' insolvency. To the contrary, argues TDH,

t he evidence showed t hat Du Sha painted a rosy picture of his companies' prospects , and he represented that his companies , including Debtors , had a bright future. Du Sha also testified that , but for COVID , the loans could have been repaid , and there was no evidence that TDH kn ew about the internal discussions among Debtors re garding their diminishing equity infusions.
TDH also argues that it did not rely solely on Du Sha's representations as the bankruptcy court stated ; TDH also relied on financial information provided by the Pacific Links entities , and Debtors ' public statements during the due diligence period about the continued viability of the development of the Makaha Propert y. Although the bankruptcy court did not explicitly identify the basis for inferring knowledge of Debtors' financial distress to TDH, we conclude that20 the record supports that TDH was on inquiry notice of Debtors' insolvency

. As Debtors note, TDH was aware of their financial distress or , at the very least , on inquiry notice of it having done its due diligence which showed
that : (1) MVCC operated at a loss, and the other subsidiary Debtors did not
gene rate income but had expenses; (2) Debtors relied on equity infusions to
pay expenses; (3) the Pacific Links entities had financial setbacks around the
time of the 2019 T ransaction; (4) Du Sha requested an extension of the 2017
and 2018 l oans because there was not enough cash to pay them back on time; (5 ) Debtors' assets woul d be dwarfed by the new debt; (6) mortgages would prevent De btors from accessing their equity to pay expenses; (7 ) no new funding came directly from the 2019 Transaction; (8 ) Debtors were becoming obligated on multi -million dollar debt with no direct benefit and nominal , if
any , indirect benefit; (9 ) the 2019 Transaction was not arms -len gth ; and (10 ) TDH us ed its relationship with TKB to unduly influence Debtors to sign
the guarantees and mortgages. Given the record, we conclude that the bankruptcy court did not clearly err in finding that TDH knew or should have known that Debtors were in
financial distress at the time of the 2019 Transaction , and that TDH failed to
meet its burden of proof that it took the transfers in good faith. While TDH may not have known that the equity infusions were going to stop, it knew
that Debtors were not ob ligors under the 2017 and 2018 loans and that they did not receive any proceeds or property from the 2019 Transaction , but were now obligated to pay those prior loans

. TDH also knew that Debtors had21 essentially no income from operations and that they were fully encumbering
their assets with the 2019 Transaction. 7 These are hal lmarks of an avoidable
transfer. Because good faith was lacking, we need not reach the issue of whether TDH gave value in exchange for the transfer s

. 8
CO NCLUSION
For the r easons stated above, we AFFIRM.

7 TDH certainly knew of Debtors' financial distress when it recorded the mortgages months later in March and April 2020, after TKB had already defaulted on the loan payments and triggered Debtors' obligation to pay.

8 TDH argues that we must remand because the bankruptcy court failed to make sufficient findings of fact and conclusions of law in accordance with Civil Rule 52(a), applicable here by Rule 7052. We do not believe that remand is necessary . The findings and conclusions the court made are not so inadequate that we are left without a complete understanding of the issues, and we can discern from the record the basis of its decision. See Louie v. United States, 776 F.2d 819, 823 (9th Cir. 1985)

.