Source: https://www.vininglaw.net/2012/03/
Timestamp: 2019-04-21 02:51:54+00:00

Document:
There is always some one working out of their car or basement that will do anything from window cleaning to practicing law “cheaper” or at the “lowest prices.” But, the hard reality is that there are no free lunches and we usually get what we pay for in life. Your financial future is sometimes dear and valuable and should not necessarily be handled by the lowest bidder.
The United States Bankruptcy Code, 11 USC 101 et seq. contains numerous provisions addressing issues of fraud. Essentially, the subject matter can be divided into two broad areas: (1) civil bankruptcy fraud and (2) criminal bankruptcy fraud. Each have their own serious implication with the main point to be made being … honestly and thoughtfully make full disclosures.
One of the primary purposes of filing your bankruptcy is to obtain a discharge which is essentially the order by which your obligations are cancelled. The discharge can be denied, however, for debtor misconduct in violating disclosure requirements, cooperation requirements and other misconduct. In the civil context 11 USC 727 (a) provides bases for the denial of a debtor’s discharge. One of which is under 11 USC 727(a)(4), which, in part, provides that the court shall not grant a discharge if the debtor “knowingly and fraudulently, in or in connection with the case… made false oath or an account…” Being denied a discharge is a disaster in itself but the criminal ramifications portend time in prison, too.
may be convicted under this felony statute.
In the end, your fresh start and freedom are too precious to risk. Always make a full and fair disclosure of assets in your bankruptcy case or do not file it.
Under the Bankruptcy Code the debtor has significant duties to cooperate with the Trustee. At 11 USC 521 the Bankruptcy Code requires the debtor’s cooperation in assisting the appointed Trustee. The actual duties are set forth very broadly in 11 USC 704 and includes the debtor’s duties to assist the Trustee in litigation.
The debtor must also assist in turning over all books and records to the Trustee. The duty to assist further extends to attending and cooperating at the Meeting of Creditors required by required by 11 USC 341. The scope of the examination is also quite broad and includes: “The acts, conduct, or property or to the financial condition and liabilities of the debtor, or to any matter which may affect the administration of the debtor’s estate, or the debtor’s right to a discharge.” Bankruptcy Rule 2004(b).
Under local practices in Michigan the Trustee may file a Motion to Dismiss for Failure to Attend the 341 Hearing. In addition, the Trustee or creditors may request more extensive hearings and examinations.
These matters are infrequent. However, it is important for the debtor to understand his or her responsibilities. A failure to meet them could result in a dismissal of their case for failure to cooperate. As always, bankruptcy is a matter of equity and fair treatment. A debtor expecting to receive equity must do equity in return.
The principal purpose of the Bankruptcy Code is to afford a “fresh start” to the “honest but unfortunate debtor.” Grogan v. Garner, 498 U.S. 279, 286-87 (1991). The discharge of prepetition debts provided under § 727(b) and the discharge injunction of § 524(a) effectuate the debtor’s fresh start. See Green v. Welsh, 956 F.2d 30, 33 (3d Cir. 1992).
(“The protection afforded by the discharge injunction… furthers one of the primary purposes of the Bankruptcy Code – that the debtor have the opportunity to make a financial fresh start.”). Some debts, however, are “nondischargeable,” such that the debtor’s liability continues even after emerging from bankruptcy protection. Section 523 of the Bankruptcy Code specifies these exceptions, which include, among others, debt obtained through fraud. Section 523(a)(2)(B) addresses debt obtained by certain false statements in writing.
For a debt to be nondischargeable under § 523(a)(2)(B), four conditions must be met: the debtor must have sought “money, property, services, or an extension, renewal, or refinancing of credit” by use of a writing (1) “that is materially false;” (2) concerning “the debtor’s or an insider’s financial condition;” (3) “on which the creditor… reasonably relied; and” (4) “that the debtor caused to be made or published with intent to deceive…” 11 U.S.C. § 523(a)(2).
Make sure to discuss with your attorney candidly any skeletons which may be in your closet. In the attorney-client relationship all conversations are privileged and confidential. Your attorney can not effectively counsel or represent you when you are not forth coming with all information, pro and con. There are other kinds of misconduct that may also result in denial of a discharge for obtained debt.
In keeping with the Bankruptcy Code’s theme of statutory fairness a Trustee in bankruptcy can avoid fraudulent transfers made by a debtor within one year of when the bankruptcy case is commenced. Therefore, the debtor may not transfer for nothing at all or for less than reasonably equivalent or fair value, his property.
These situations generally arise in two contexts. In the first situation a debtor sometimes tries to keep property out of the reach of his creditors or the Trustee and make a transfer before filing the case. The second situation usually arises in the context of business bankruptcies where the transfer renders the debtor unable to pay bills or with unusually small working capital.
In either situation one can see how such transfers are unfair to other creditors who have advanced money in good faith. Thus, 11 USC 548 allows the Trustee go after and recover such transfers, if they are made within the actual fraudulent intent to hinder, delay or defraud creditors; or, are made with constructive or imputed fraudulent intent while the debtor is in financial distress.
In addition, in states like Michigan, which have their own Fraudulent Conveyance Act (MCL 566.11) the Trustee may use the state statute too as a recovery vehicle pursuant to 11 USC 544(b), if unsecured creditors of the debtor could have used the provision for recovery under state law.
Transfers that are unwound or recovered then benefit all administrative claims and creditors of the estate.
As discussed in other postings, the Bankruptcy Code is a type of statutory equity. The concept of equity is basically to do what is right and fair to all of the interested parties to a proceeding in bankruptcy. The Bankruptcy Code has several enforcement mechanisms to make sure that everyone is treated fairly.
One of these mechanisms is the power afforded to the Trustee to set aside unfair payments or transfers. When a bankruptcy case is filed all of your property becomes a part of the bankruptcy estate. 11 USC 541. The estate is appointed a Trustee by the Court. It is the duty of the Trustee to investigate the financial affairs of each debtor and to represent the estate for the best interests of all creditors.
To operate effectively the Trustee is given certain tools under the Bankruptcy Code. Among these is the power to go after and recover from third-parties preferential transfers that the debtor made before the bankruptcy. Specifically, 11 USC 547(b) allows the Trustee to recover property for the benefit of the bankruptcy estate and all creditors from a creditor who received a payment, or amount of a past indebtedness, when the debtor was insolvent, within 90 days before the filing, which allowed that creditor to receive more than it would have received as a distribution from the estate.
Thus, the money received by a creditor, out of turn or in preference, to others can be ordered turned over to the Trustee by the Judge. This is done so that all administrative and creditor claims are treated fairly.
Oppression of Minority Shareholders: What are Shareholder Rights?
The question then arises as to what the interests of a shareholder are. In other words, what are the rights incidental a shareholder’s interests? Generally, speaking a shareholder’s rights in a close corporation consists of: the right to inspect the books and records and for a reasonable accounting; the right to vote and participate in management of the corporation; and, the right to receive a share of the profits of the business. These rights are based upon statutes and the common law of Michigan.
These are the types of rights which if violated in a significant way or on a continuous basis may form a minority shareholder oppression case pursuant to MCL 450. 1489. In blog postings to follow we will examine some of the cases when oppressive acts have been found and not found under the shareholder oppression statute.
In the meantime, it is interesting to note that Michigan has a long history prior to the Shareholder Oppression Statute protecting minority shareholders. One of the interesting cases is Dodge Brothers v. Ford Motor, Co., 204 Mich 459 (1919). In that case the minority shareholders requested and received a court order requiring Henry Ford (majority holder) to declare and pay a significant dividend to the minority shareholders. The Michigan Supreme Court noted that Ford’s refusal appeared to be arbitrary because the company had consistent profits and was at the time cash rich. Apparently, Mr. Ford’s reluctance may have had something to do with keeping his competitors from receiving money that they would use to compete against him. In any event, in equity, because the purpose of an investment is to make money, the Michigan Courts for over 90 years now, have ordered dividends paid in an appropriate case.
The Bankruptcy Code in keeping with equitable treatment of creditors and fresh start considerations for debtors provides a comprehensive set of exemptions. Exemptions in Michigan are also provided under state laws so that the debtor may choose that set — either Federal or State — which are the most favorable.
Upon the filing of a petition in bankruptcy, 11 USC 541 states that all of the debtor’s property – legal or equitable – and wherever situated, becomes the property of the estate. The exemptions determine what property a debtor may keep for his fresh start. It is therefore critical to determine, based in the facts of each case, which set of exemptions to choose and whether the filing may proceed or should be delayed.
Competent advice on these issues is essential. When debts start to appear overwhelming get immediate advice. Otherwise, you may with good intentions hurt your family by paying dischargeable bills from exempt assets, which you could otherwise keep. For instance, it may be foolish to borrow from your 401-K (an exempt asset), with tax penalties, and use the money to pay a bill which could be eliminated by a Chapter 7 discharge. Before you make a major mistake make sure to talk to a bankruptcy lawyer so that your family is best protected.
Minority shareholders are often the abused backbone of close corporations. That is to say it was their “sweat equity,” ideas or capital contributions which allowed the corporation to be conceived. Once the corporation becomes successful it is all too easy for the majority shareholders to forget that they were significantly helped along the way by others. The majority then, out of greed or just callous disregard for the rights of others neglects or freeze out and squeeze out the minority shareholders.
In recognition of the Legislature purposes to foster business and growth Michigan has, as earlier related in other segments, enacted the Oppressive Acts statute, MCL 450.1489, which provides a cause of action for minority shareholders who are being frozen or squeezed out. Moreover, the courts are commencing to more liberally enforce the rights of minority shareholders. After all, if there is no profit in it and if a minority shareholder may be abused, why invest at all? And, one can see that the absence investment equals to stagnation.
A minority shareholder, pursuant to MCL 450.1489, may seek relief from majority oppression. The general statute of limitations is a period of 6 years for general oppressive conduct. The reason apparently is because the minority shareholder has the burden of establishing “a continuing course of conduct or a significant action or series of actions that substantially interferes with the interests of the shareholders, as a shareholder.” Therefore, the statues allow a long “look back” at majority misconduct with respect to equitable relief available. In Estes v. Idea Engineering, 250 Mich App 270 (2002) the Court of Appeals found that the 6 years provides an appropriate amount of time to produce proof of a pattern of misconduct and to seek relief.
The equitable relief available is broad and includes, among other things: dissolution and liquidation of the corporation, injunctions and Court ordered buy-outs.
An important distinction is made under the statute, however, with respect to relief consisting of monetary damages. Specifically, claims for money damages must be brought within 3 years of accrual or within 2 years after the aggrieved shareholder discovers or should have reasonably discovered the damages, which ever occurs first. Therefore, a minority shareholder should seek legal counsel at the first signs of oppression to protect his rights. A delay in prosecuting a case might result in a denial of money damages even though significant equitable remedy is available.

References: v. 
 § 727
 § 524
 v. 
 § 523
 § 523
 v. 
 v.