Trustee Dismisses Fraudulent Conveyance Clawback Based on J&A’s Reasonably Equivalent Value Argument
The Debtors are a company incorporated in Guadalupe, Arizona and they own and operate restaurants. The Defendants, our client, are the owners of a building used as a franchised fast-food outlet. The Debtor intended to lease a space to operate a franchise of the restaurant chain and executed a lease agreement with Defendant.
After the Debtors filed for bankruptcy, the plaintiff brought a complaint, alleging that the payments totaling $40k were received by the Defendants during the preference period and are avoidable as alleged preferential transfers pursuant to 11 U.S.C. § 547 of the Bankruptcy Code.
Upon our analysis, we showed that the bulk of the transfers were made in the ordinary course of business or financial affairs of the parties and therefore exempt from avoidance under Section 547 (c) (2) of the Bankruptcy Code. Additionally, we also showed that a portion of the transfers should be considered as a contemporaneous exchange of new value and cannot be avoided under §547 (c) (1). Besides, we proved that the plaintiff failed to indicate any factual basis for his fraudulent transfer claims. We showed the Debtors’ payment as rent to the Defendants in exchange for use of Defendants’ property/building did not constitute avoidable fraudulent transfers under the Bankruptcy Code as the Debtor did receive reasonably equivalent value in exchange for the funds transferred.
Based on our arguments in the position statement, Plaintiff dismissed the case for no payment.
Debtor Did Receive Reasonably Equivalent Value in Exchange for the Rental Payments, Case Dismissed For No Payment