Opinion ID: 546944
Heading Depth: 3
Heading Rank: 7

Heading: count viii, champlin's expense money

Text: 52 The bankruptcy court rejected the Trustee's claim that the payment to Champlin of $13,800 on the day before the Bank repossessed all of Vitreous' assets constituted a fraudulent transfer on the grounds that, at that time, Vitreous was paying all its debts as they came due, and was therefore not insolvent within the meaning of Sec. 548(a)(2)(B)(i). While it is true that, after Champlin took over the operations of Vitreous, Vitreous paid for all new purchases on a cash basis and paid all new bills as they became due, it is also true that Vitreous did not pay anything on debts which had become due before July 10, 1986. Vitreous was in default to the Bank, and was also sufficiently in default to other creditors to become the subject of an involuntary Chapter 7 proceeding. Given the bankruptcy court's almost simultaneous finding that the value of all of Vitreous' assets was only sufficient to pay off the Bank without a penny left over for the remaining creditors, the finding that Vitreous was not insolvent at the time of the payment to Champlin was clearly erroneous. Furthermore, the record fails to set forth an itemized listing of expenses for which Champlin was being reimbursed. He claimed in his testimony at the Sec. 362 hearing that the money was for travel expenses incurred some time back, but Champlin had been an employee of Vitreous only since July 10, 1986. That meant that between that time and August 29, 1986 when VITCO began operating the plant for the Bank, there was only a period of fifty days during which Champlin could have been travelling as a Vitreous employee before the reimbursement--hardly some time back. The large amount of the reimbursement suggests that it might very well have taken more than fifty days to incur the amount of debt. That in turn suggests that Champlin may have taken reimbursement from Vitreous for expenses he incurred in taking control of the company. The company itself got no benefit from a transfer of its stock on the secondary market, and can hardly be said to have received equivalent value within the meaning of Sec. 548(a)(2)(A) when it paid for such a transfer. On remand the bankruptcy court should demand an account of all the expenses claimed and paid out and from this information and other information gained at a full and complete hearing determine whether Vitreous received reasonably equivalent value for the August 28, 1986 transfer of $13,800 to Champlin. 6