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Trustee Successfully Avoids Fraudulent Transfers from Oil and Gas Companies

October 13, 2017, Northern District of TexasDebtor Aeon Operating, Inc. was oil and gas operator for certain wells known as Mine Wells. Defendants Mercury Operating LLC and PetroRock Mineral Holdings were an oil and gas exploration companies. One and half months before the petition date, the Debtor retroactively assigned all its operating revenue to Mercury. 72 days before the petition date, Mercury received certain transfers directly from purchasers of the Debtor’s oil and gas production relating to proceeds from the Debtor’s operations (the Revenue sweep transfers). Subsequently, Mercury also received two wire transfers directly from the Debtor. The Trustee sought the avoidance and recovery of these prepetition transfers from the Defendants as either fraudulent transfers or preferences. The Court held the Revenue sweep transfer and the first wire transfer to be avoidable fraudulent transfers under Section 548(a)(1)(B) because they were transfer of an interest of the Debtor in property, made within two years before the petition date, in which the Debtor received less than a reasonably equivalent value in exchange and was insolvent on the date of such transfer. The source of the Revenue sweep transfer was the proceeds from the sale of oil and gas for wells operated by the Debtor, and the Debtor had control on that. The source of the first wire transfer was the Debtor’s operating bank account, which was a commingled account that held funds received from different sources. The Court also held the second wire transfer to be an avoidable preference under Section 547(b) because it satisfied all the conditions of Sec. 547(b) and the Defendant did not present any sufficient evidence to support an ordinary course of business defense under section 547(c)(2).

Seidel v Mercury Operating, LLC (In re Aeon Operating, Inc.), 2017 Bankr. LEXIS 3370 [Bankr ND Tex Oct. 3, 2017, Nos. 15-33935-hdh7, 17-03028]