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Judge Bars Sales of Ch. 11 Grocery Stores Due to Fraudulent Claims

May 31, 2016, Delaware – A Delaware bankruptcy judge restrained a failed grocery chain’s owners and subsidiaries from selling its stores to an insider-controlled company and granted the plaintiff’s ex parte motion for temporary restraining order and motion for preliminary injunction. The case relates to an alleged fraudulent transfer of Debtor Fresh & Easy LLC’s real property to an insider-owned affiliate for no consideration.

Two years ago, in April 2014, the Debtor suffered significant recurring losses and was substantially insolvent. The Debtor’s insiders allegedly transferred 19 parcels of unencumbered real property to the newly formed, insider-owned FEFOS, LLC (FEFOS). The Debtor allegedly received nothing in exchange for this transfer. Based on this, the creditors’ committee, acting on the Debtor’s behalf, sought to avoid and recover the alleged fraudulent transfer for the benefit of the estate and its creditors.

The Committee in its motion for temporary restraining order and preliminary injunction requested the Court to enter an ex parte temporary restraining order enjoining FEFOS from transferring any of the stores, except as approved in advance by the Committee; transferring any proceeds from the sale of the stores, except as necessary to pay any reasonable expenses in the ordinary course of business or as approved in advance by the Committee; and commingling any proceeds from the sale of the stores with any other funds, except as approved in advance by the Committee.

The Committee alleged that the transfer was made with the actual intent to hinder, delay, or defraud creditors to which the Debtor was or became indebted to on or after the date of the transfers. The Debtor received less than reasonably equivalent value in exchange for the Transfer. Indeed, the Debtor received no value whatsoever for the Transfer. Thus, the alleged transfer is liable to be recovered as fraudulent under Sec. 548(a) (1) and Sec. 548 (b) (1).

The Court stated that the balance of hardship and public interest favors in granting the injunctive relief and accordingly restrained FEFOS to either transfer the stores or transfers/ commingle the proceeds from the sale of stores. The Court is scheduled to conduct a hearing on the Committee’s request in motion for preliminary injunction on June 13, 2016.


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