February 1, 2021, Delaware – Debtor Bluefly Acquisition, LLC operated a well-known e-commerce fashion website selling clothing, accessories, and jewelry. Defendant Apparel Production Services Global, LLC (“APS”) is a women’s clothing manufacturer.
Allegedly, the Debtor’s manager caused the Debtor to incur an improper and undisclosed debt of $9 million in the form of loans from Defendants and other entities. Before this, the Debtor had obtained a commercial business loan of $12,250,000.00 from the two investment firms – Clearlake Capital Partners II L.P. and Clearlake Capital Partners III L.P. (collectively “Clearlake”). The Debtor had also granted Clearlake a first priority security interest in substantially all of Debtor’s assets. Additionally, under the agreement between the Debtor and Clearlake, the Debtor was prohibited to incur any kind of additional debt without the approval of Clearlake.
Later on, the Debtor allegedly made payments for $1,300,000 to Defendant towards the repayment of the debt against the loan. Trustee Jeoffrey L. Burtch initiates the adversary proceeding to recover these payments as actual fraud.
The Trustee argues that the Debtor did not receive reasonably equivalent value for the transfers because such payments were made in purported repayment of the improper loans, which based on the totality of the circumstances, should be re-characterized as equity interests. Among other badges supporting actual intent, the Trustee argues that the transfers were made “to or for the benefit” of insiders, while the Debtor was insolvent or unable to pay its debts as they became due, and without reasonably equivalent value. Thus, the transfers are avoidable under Sec. 548 of the bankruptcy code. The Trustee also seeks for disallowance of proof of claim of the Defendant.
The case is In re Bluefly Acquisition, LLC, in the United States Bankruptcy Court for the District of Delaware under case no. 19-10207(CSS). Honorable Judge Christopher S. Sontchi is presiding over the Debtor’s bankruptcy cases. The Law Office of Susan E. Kaufman, LLC is representing the plaintiffs.