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Defendant Fails to Rebut the Presumption of Insolvency or Demonstrate that a Genuine Issue of Material Fact Exists as to the Debtor’s Solvency At the Time of the Transfer

March 17, 2017, New York Geltzer v. Fleck (In re ContinuityX, Inc.),Nos. 13-10458 (MKV), 15-01015 (MKV), 2017 Bankr. LEXIS 709 (U.S. Bankr. S.D.N.Y. Mar. 17, 2017)

The Trustee for Debtor ContinuityX Solutions, Inc. brought an adversary proceeding against Defendant Robert J. Fleck to avoid and recover certain transfers as preferences under sections 547 and 550 of the Bankruptcy Code. Before the transfers, the Defendant provided certain financial accounting related services to the Debtor and issued various invoices, which set forth the details of the services rendered and the amount of payment owed for such services. The Defendant also submitted expense
reports for reimbursement of his out-of-pocket expenses. The Defendant admitted that he received thealleged transfers from the Debtors on account of an antecedent debt and that the transfers were received within the 90 days preceding the petition date. However, the Defendant argued that summary judgment should be denied because the Debtors were solvent at the time the transfers were made.

Next, the Defendant argued that the Debtors made the alleged transfers to the Defendant on account of services, which the Defendant rendered to the Debtors as the Debtor’s employee.
Hence, it was a contemporaneous exchange for new value under Sec 547 (c) (1). The Court held for the Trustee. The Court found that the two documents, Form 10-K and the Form 10- Q, which were submitted by the Defendant did relate to the Debtor’s financial condition. However, these documents referred to the Debtor’s financial condition before the transfer period. Thus, the Court ruled that the evidence was insufficient to rebut the presumption of insolvency during or at the time of transfer or to raise a genuine issue of material fact on the Debtors’ solvency at the time of the transfer period.

Next, the Court found that the Defendant failed to offer any competent evidence to support his defense that he was an employee entitled to a finding of non-avoidability under §547(c)(1). The Trustee, however, acknowledged that the Defendant did provide new value amounting to $13,940 and accordingly offset in part the claim. The Court concluded that the Defendant failed to meet his burden of proof or even to demonstrate a material issue of fact on any available defense to the Trustee’s claim.

Accordingly, the Court granted judgment for the Trustee after offsetting the amount of his claim by the new value credit.