Opinion ID: 787272
Heading Depth: 3
Heading Rank: 3

Heading: Paying Debts as they Become Due

Text: 40 Because we agree with the bankruptcy court that there were no triable issues of fact regarding the bona fide dispute and three-entity issues, we turn to the issue of whether Focus was not generally paying its debts as they became due. See 11 U.S.C. § 303(h)(1). Before summary judgment, the bankruptcy court imposed a discovery sanction on Focus, establishing as fact that Focus was not generally paying its debts as they became due. Nonetheless, in granting summary judgment, the bankruptcy court made an independent and separate finding to this effect based on the record before it. 41 We agree with the bankruptcy court's grant of summary judgment on this issue. This circuit has adopted a totality of the circumstances test for determining whether an alleged debtor is generally paying its debts as they become due. Hayes v. Rewald (In re Bishop, Baldwin, Rewald, Dillingham & Wong, Inc.), 779 F.2d 471, 475 (9th Cir.1985). Thus, [a] finding that a debtor is generally not paying its debts `requires a more general showing of the debtor's financial condition and debt structure than merely establishing the existence of a few unpaid debts.' Vortex, 277 F.3d at 1072 (quoting Dill, 731 F.2d at 632). In Vortex, for example, we held that the bankruptcy court did not clearly err in finding that Vortex was generally paying its debts as they became due, where Vortex ha[d] been paying off the debts it ha[d] incurred, including a full settlement of the IRS deficiency that was assessed. 277 F.3d at 1072. 42 The circumstances of Vortex are not replicated here. As we have explained, Rubin admitted in his state court declarations that Focus' debts to media companies became due within 90 days of receiving their invoices and that Focus owed media companies millions of dollars for such debts. There is no evidence that Focus was paying off its debts owed to the media companies at all, let alone within 90 days. Further, the bankruptcy court explained: 43 Th[e] aged payables report (as of 3/31/00) shows $63,884,983 total owed to creditors listed in the report, of which $49,482,956 is OVER 90 days old. No evidence has been presented on this motion by Focus that any of this was paid between 3/31/00 and the date the petition was filed (10/06/00). Having 80% of your debts over 90 days old is not paying debts as they come due. 44 We agree. The record does not depict a company with a few unpaid bills. Instead, it depicts a company that had substantial amounts of unpaid bills and no plans or ability to pay them. Finally, Focus does not contend that the bankruptcy court's discovery sanction ruling prevented it from demonstrating that it was paying off its debts. 11 We therefore conclude that Focus failed to create a triable issue of fact regarding whether it was generally paying its debts as they became due.