In re Image Worldwide, Limited

Richard Steinberg was the owner and sole officer of Image Marketing, Ltd. (Image). Image leased space from FCL Graphics (FCL). Image borrowed $300,000 from Parkway Bank (Parkway) (creditor) in 1992. By the end of 1993, Image was also several hundred thousand dollars in debt to other creditors. Steinway then formed a new corporation, Image Worldwide, Ltd. (Worldwide) (debtor), which leased the same space from FCL and used the same suppliers. In 1994, Steinberg liquidated Image and used the proceeds to pay off some of Image’s creditors. In lieu of demanding payment on Image’s line of credit, Parkway required Worldwide to guarantee Image’s debt. Worldwide agreed to secure Image’s debt with a priority lien in Worldwide’s assets. Parkway then lent Steinberg an additional $200,000 to pay Image’s remaining debt to FCL. Worldwide also guaranteed this loan. Worldwide paid the principal and interest on the Image loan and the Steinberg loan, and FCL continued to lease space to Worldwide. Worldwide became insolvent as a result of the guarantees and eventually failed. In 1995, FCL stopped doing business with Worldwide and filed an involuntary chapter 7 bankruptcy petition against Worldwide. Parkway lifted the automatic stay and collected from Worldwide’s accounts receivable. The bankruptcy trustee sought to recover the guarantees given to Parkway as fraudulent transfers. The bankruptcy court held that the transfers were fraudulent because Worldwide did not receive reasonably equivalent value for its guarantees, and the district court affirmed.