Fraudulent Transfer Case Dismissed After Demonstrating Loan Repayment And Reasonably Equivalent Value

A Chapter 7 trustee filed an adversary proceeding alleging that transfers to a commercial finance company were fraudulent because they were made for less than reasonably equivalent value. The complaint characterized the payments as made in connection with the purchase of receivables and sought to avoid and recover them as constructively fraudulent transfers.

Drawing on the governing loan and security agreement and the course of dealing, our firm demonstrated that the underlying transaction was, in fact, a loan and not a receivables purchase. We showed that the Defendant never took title to the debtor’s accounts receivable, that the debtor remained the owner of its receivables, and that the challenged transfers were ordinary repayments of a valid, enforceable financing obligation. Because the debtor received the loan proceeds and the payments reduced an actual debt, the record established reasonably equivalent value as a matter of law.

Once confronted with these facts and legal defenses, the Trustee voluntarily dismissed the lawsuit. Our client avoided any settlement payment or judgment while preserving its legal position and avoiding protracted litigation costs.

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