Opinion ID: 586923
Heading Depth: 1
Heading Rank: 3

Heading: wisconsin fraudulent conveyance act

Text: 18 The Trustee also argues that the Loan Agreement and, in particular, the $174,000 loan from Loyal to KVCC made pursuant to that agreement, constituted fraudulent conveyances under the Wisconsin Act. The Wisconsin Act, of course, does not contain the one-year limitation of the Bankruptcy Code. The bankruptcy court found, and the parties do not appear to dispute, that the applicable statute of limitations under the Wisconsin Act is six years from the time of the accrual of the actions. Thus, the April 25, 1986, transaction between Loyal and the Bank is within the applicable time limit under the Wisconsin Act. Nevertheless, the Trustee's claim fails. 19 Under the Wisconsin law in effect at the time of the transaction, a conveyance is fraudulent if it is made without fair consideration and the person making the conveyance (1) is or will be thereby rendered insolvent 6 or (2) is engaged or is about to engage in a business or transaction for which the property in his hands after the conveyance is an unreasonably small capital. 7 The Wisconsin Act further provides that [a] person is insolvent when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured. 8 The burden of proving these elements is on the Trustee. In re Atkinson, 63 B.R. 266 (Bankr.W.D.Wis.1986). 9 The elements of a fraudulent conveyance must be established by clear and convincing evidence. Kerbet v. Behling, 265 Wis. 288, 61 N.W.2d 205, 207 (1953). The bankruptcy court found that the Trustee had failed to prove either (1) that Loyal was insolvent at the time of the April 25, 1986 transaction or became insolvent as a result of that transaction, or (2) that the transaction left Loyal with unreasonably small capital. We review each of these conclusions in turn.
20 The Trustee argues that the bankruptcy court's finding as to insolvency, which was affirmed by the district court, is erroneous because the court used a capitalization of earnings test rather than the balance sheet test contained in the Wisconsin statute. This argument is without merit. The bankruptcy court stated that there was conflicting evidence with respect both to Loyal's solvency when it entered into the Loan Agreement and to the effect of that agreement on its solvency. The court then quoted the Wisconsin statute's definition of insolvency, observing that it has to do with present fair salable value. Bankr.Op. at 21. The court found, however, that the Trustee had failed to show the present fair salable value of Loyal's assets in a clear and convincing manner. Id. Rather, the court noted that the Trustee had relied solely on the Bank's estimated liquidation value of Loyal's assets, which the court concluded was not clear [evidence] of the insolvency of the debtor on 4/25/86. Id. The bankruptcy court thus applied the correct test under Wisconsin law, and its conclusion was not clearly erroneous.
21 The Trustee also argues that the bankruptcy court erred in finding that the Loan Agreement did not leave Loyal with unreasonably small capital. We are not persuaded. The bankruptcy court found that the evidence on this issue was conflicting but that Loyal had been doing fine with a small capitalization for years and in fact was netting $30,000 per month at the time the parties entered into the Loan Agreement. In addition, the court found that Loyal's eventual demise was due not to the increased loan payments under the April 25, 1986, agreement but to cutbacks in government cheese programs, which had been a mainstay of Loyal's business. We agree with the district court that these findings of fact are not clearly erroneous.