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Illinois Court: It is For Trustee to Prove That Less Than Reasonably Equivalent Value was Provided

Chatz v. Stepaniants (In re Fatoorehchi), Nos. 13 B 46203, 14 A 679, 2016 Bankr. LEXIS 761 (U.S. Bankr. N.D. Ill. Mar. 9, 2016)

March 9, 2016, Northern District of Illinois – The Chapter 7 Trustee, Barry A. Chatz brought an action to avoid and recover certain transfers pursuant to 11 U.S.C. § 548(a)(1)(B) that Debtor Hank Fatoorehchi made to the Defendant Aram Stepaniants during the two years period prior to the Debtor’s bankruptcy case. The alleged transfers were attributable to paychecks or shareholder distributions. Neither the parties disputed that there were transfers of Fatoorehchi’s shareholder distributions nor that transfers occurred within two years of the filing of the bankruptcy petition. The arguments were focused on the issue of reasonably equivalent value and insolvency. The Trustee argued that the Stepaniants did not provide reasonably equivalent value in exchange for the transfers received. Stepaniants argued that reasonably equivalent value was represented by the IT services he provided.

The Court found that the witnesses testified that Stepaniants provided a significant amount of information technology services, without ever charging for his labor. Stepaniants had always been the IT person and carried out various works including installation, fixation of computers, printers, toners, inks, the IT equipment, etc. Stepaniants did basically everything including service, maintenance, network administration, server administration, administrating e-mails. The Court stated that although there was no clarity as to whether the fair market value was transferred and received, whether the transaction took place at aim’s length, and the good faith of the transferee, this lack of information cannot be held against Stepaniants, who did not bear the burden of proof. It is the Trustee’s burden to demonstrate less than a reasonably equivalent value.

The Court further concluded that the parties had been doing business together for years; there was nothing in the arrangement that appeared suspicious or would lead the court to question Stepaniants’ good faith. There was no evidence that Fatoorehchi and Stepaniants had anything other than a respectful business relationship. The Court concluded that the provision of Stepaniants’ IT services was a fair exchange for a share of Fatoorehchi’s shareholder distributions. Since the Trustee failed to prove lack of reasonably equivalent value, the Court ruled that the Trustee did not satisfy all the elements required to prevail under 11 U.S.C. § 548 and held in favor of Stepaniants.


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