Source: https://cbaclelegalconnection.com/tag/bankruptcy-court/
Timestamp: 2019-04-25 16:18:15+00:00

Document:
The Tenth Circuit Court of Appeals issued its opinion in In re Adam Aircraft Industries, Inc.: Weinman v. Walker on Thursday, October 15, 2015.
Joseph Walker was the president and a board member for Adam Aircraft Industries (AAI). On February 1, 2007, George “Rick” Adam, AAI’s board chair, informed Walker that the board had decided to replace him as president and requested his resignation in lieu of terminating his employment. AAI was engaged in debt financing negotiations with Morgan Stanley for an $80 million loan and did not want to imperil its negotiations with bad publicity from Walker’s termination. Walker returned to his office late that night to collect his belongings, and sent an email to the board chair and another board member outlining requests for his resignation. His replacement as president started working for AAI on February 2. Over the next two weeks, AAI and Walker negotiated the terms of his separation and eventually entered into Separation Agreement I and a Memorandum of Understanding (MOU) on February 13, 2007. On March 20, 2007, AAI refunded Walker’s security deposit for an airplane, plus interest, and on May 18, 2007, the parties entered into Separation Agreement II. AAI continued to make twice-monthly severance payments to Walker between February 2007 and February 2008.
On February 15, 2008, AAI filed a voluntary petition for bankruptcy, and the trustee, Weinman, sold substantially all of AAI’s assets for a gross purchase price of $10 million in April 2008. Walker filed a proof of claim in AAI’s bankruptcy case for $134,931.00, including $10,950.00 as a priority-employee claim based on wages, salaries, and commissions under the MOU and Separation Agreements. AAI filed a complaint in January 2010, seeking to avoid and recover transfers to Walker under the MOU and Separation Agreements. The bankruptcy court held a trial in February 2013 and entered its order in June 2013, ruling that Walker ceased to be a statutory insider on February 1, 2007, and did not meet criteria for a non-statutory insider; the transfers to Walker did not occur under an employment contract; and Walker gave reasonably equivalent value for the transfers. AAI appealed to the BAP, which affirmed the bankruptcy court, and again appealed to the Tenth Circuit.
AAI argued to the Tenth Circuit that its transfers to Walker were avoidable under 11 U.S.C. § 548(a)(1). The Circuit iterated five prongs that AAI must meet to prove its transfers were avoidable: (1) the transfers must have occurred within two years of the bankruptcy filing; (2) Walker must have been an insider either when the transfers were negotiated or when the money was paid; (3) the transfers must have been made under an employment contract; (4) AAI must have received less than equivalent value for the transfers; and (5) the transfers must have been made outside the ordinary course of business. The Tenth Circuit noted that the burden was on AAI to prove all five prongs, and failure to prove even one prong would mean AAI could not prevail. Since the parties did not dispute the first factor, the Tenth Circuit began its analysis by looking at whether Walker was an insider when the transfers were negotiated or the money was paid.
The bankruptcy court concluded that Walker’s insider status ceased as of February 1, 2007, and the Tenth Circuit agreed. AAI argued that because the MOU listed March 1, 2007, as Walker’s termination date, the first Separation Agreement and MOU were entered into while Walker retained insider status. The bankruptcy court found, however, that Walker did no further work for AAI after that date, he did not return to the AAI premises, and his replacement started on February 2. The Tenth Circuit found no clear error in the bankruptcy court’s determinations. The bankruptcy court also held Walker could not qualify as a non-statutory insider, which AAI argued was applicable because Walker proposed the initial terms of his separation, which AAI ultimately accepted. The Tenth Circuit found this was insufficient to satisfy AAI’s burden. The Tenth Circuit similarly rejected AAI’s contention that refusing to classify Walker as an insider would frustrate the purpose of BAPCPA, noting it could not imagine Congress intended the BAPCPA to allow businesses to negotiate separation terms with an employee, which the employee fulfilled, then avoid any reciprocal obligations to the employee.
AAI next argued its payments to Walker were recoverable under the “non-insider” portions of § 548. The statute allows avoidance of transfers if AAI received less than equivalent value at the date of each transfer and AAI was insolvent. The Tenth Circuit again noted that failure of one prong would negate the possibility of avoidance. The bankruptcy court had found that the antecedent debt created by the MOU and Separation Agreements for the severance package constituted “reasonably equivalent value” because Walker had agreed to resign instead of facing termination in order not to imperil the debt financing with Morgan Stanley and had not retained employment with competing companies. As for the airplane deposit and stock purchase refund, the Tenth Circuit found no error in the bankruptcy court’s determination that these transactions were not avoidable.
The Tenth Circuit affirmed the bankruptcy court.
The Tenth Circuit Court of Appeals issued its opinion in In re C.W. Mining Co.: Jubber v. SMC Electrical Products, Inc. on Monday, August 10, 2015.
C.W. Mining was forced into bankruptcy after creditors filed a petition for involuntary bankruptcy on January 8, 2008. In June 2007, C.W. had entered into an agreement with SMC Electrical Products, Inc., to purchase equipment in order to switch from a continuous method of mining to a longwall method. On September 18, 2007, SMC submitted an invoice to C.W. for $808,539.75, due in 30 days. C.W. made a $200,000 payment on the invoice on October 16, 2007, two days before it was due. The bankruptcy trustee initiated an adversary proceeding to avoid the transfer under 11 U.S.C. § 547(b). The bankruptcy court granted SMC summary judgment and rejected the trustee’s claim on the grounds that the transfer was made in the ordinary course of business. The BAP affirmed, and the trustee appealed to the Tenth Circuit.
The Tenth Circuit analyzed avoidance and the ordinary course of business exception, including the scrutiny applied to first-time transactions. The Tenth Circuit explained the purpose of the ordinary course of business transaction in detail, and examined its application as to both parties in the business transaction. Applying its analysis to the circumstances of this case, the Tenth Circuit found that the transaction between C.W. and SMC was within the ordinary course of business. The purchase was an arms’ length transaction for the purpose of assisting in mining operations. The Tenth Circuit dismissed the trustee’s arguments, characterizing them as an argument against a first-time transaction and finding that was not enough to avoid the transfer.
The bankruptcy court’s ruling was affirmed.
In any three- to five-year period, many of us face unanticipated financial obstacles – medical expenses, educational expenses, dependent expenses. For a bankruptcy debtor, these unexpected financial burdens can derail a payment plan. Thankfully, the Bankruptcy Code at 11 U.S.C. § 1329 allows post-confirmation plan modifications so that debtors can adapt to changing life circumstances.
Section 1329 permits a debtor, trustee, or holder of an unsecured loan to request modification to increase or reduce payments to a particular class; prolong or shorten the time for those payments; alter the amount of distribution to a creditor in order to account for another payment not covered by the plan; or reduce payments in order to cover health insurance expenses for the debtor.
To allow for the purchase of health insurance (now generally required by the Affordable Care Act), so long as the debtor complies with § 1329(a)(4).
Trexler also provides the sample modification request motions and projected plans for several of these scenarios. He will present on this topic at Friday’s CLE program – Bankruptcy Update 2014 – along with several bankruptcy court judges and other area bankruptcy attorneys. Click the links below to register or call (303) 860-0608.
This CLE presentation will take place on June 6, 2014. Click here to register for the live program and click here to register for the webcast. You can also register by phone at (303) 860-0608.
The U.S. Bankruptcy Court for the District of Colorado announced that it will be closed from 11:30 a.m. to 12:45 p.m. on Tuesday, December 18, 2012. The closure is so that the court staff can have a holiday luncheon. The court requests that all paper filings and telephone calls be avoided during this time.
The bankruptcy court will also be closed Monday and Tuesday, December 24 and 25, for Christmas, and December 31 and January 1, for New Year’s.
The U.S. Bankruptcy Court for the District of Colorado has amended its Chapter 13 Plan form. A General Protective Order will enter to make the form effective February 1, 2013. The changes are generally related to formatting, but there are also some substantive changes, which are highlighted on the PDF version of the form.
The U.S. Bankruptcy Court judges welcome input on the form. To submit feedback, please email comments and suggestions to webmaster@cob.uscourts.gov.
The form is available in MS Word and Adobe Acrobat PDF. Download the form from the U.S. Bankruptcy Court webpage or click here for the PDF.
The U.S. Bankruptcy Court for the District of Colorado announced that it will be closed on Monday, December 24, 2012 and Monday, December 31, 2012, so that the judges and staff may spend more time with their families.
The court will also be closed on Tuesday, December 25, in honor of the Christmas holiday, and Tuesday, January 1, in honor of the New Year’s holiday. Click here to see GPO 2012-06, signed by Chief District Judge Wiley Y. Daniel and Chief Bankruptcy Judge Howard R. Tallman, which authorizes the closure.

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