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Boyer v. Crown Stock Distribution, Inc.
United States Court of Appeals for the Seventh Circuit
587 F.3d 787 (2009)
Crown Unlimited Machine, Inc. (Old Crown) (defendants) was a machinery company. Old Crown agreed to sell all of its assets to Kevin Smith for $6,000,000. Smith formed a new corporation, also called Crown Unlimited Machine, Inc. (New Crown) (debtor). New Crown paid Old Crown with $3,100,000 in cash and a $2,900,000 promissory note. Both the bank loan and the note were secured by all of Old Crown’s assets, which meant that after the transaction, New Crown’s assets would be doubly encumbered. After the closing, Old Crown distributed the $3,100,000 cash payment to its shareholders and ceased operations. New Crown failed and filed for liquidation under chapter 7 of the bankruptcy code. The trustee (plaintiff) filed an adversary proceeding seeking to to avoid the sale of Old Crown as a constructive fraudulent transfer and recover the purchase price on behalf of New Crown’s creditors. The bankruptcy court ruled that the transaction was a constructive fraudulent conveyance, and the district court affirmed. The parties associated with Old Crown appealed, arguing that the transaction was legitimate and that the company failed for reasons unrelated to the structure of the transaction.
Rule of Law
Holding and Reasoning (Posner, J.)
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