In re O'Day Corp. v. Meritor Savings Bank
United States Bankruptcy Court for the District of Massachusetts
126 B.R. 370 (1991)
- Written by Rich Walter, JD
Facts
Meritor Savings Bank (Meritor) (defendant) financed the leveraged buyout of the O’Day Corporation. The transaction involved canceling much of O’Day’s existing debt load and a new multimillion-dollar loan, which was used to pay off O’Day’s controlling shareholder and which O’Day secured by putting up its assets as security. O’Day’s balance sheet showed that O’Day netted just $1,344 from the transaction. O’Day subsequently declared bankruptcy in federal court. When Meritor tried to collect on its security interest, O’Day’s bankruptcy trustee (plaintiff) petitioned the court to declare Meritor’s secured loan voidable under Massachusetts antifraud statutes. The trustee produced evidence that O’Day became insolvent as a result of guaranteeing the loan and that Meritor had engaged in overreaching conduct after the merger. The trustee also petitioned to have Meritor’s remaining unsecured claim equitably subordinated to those of O’Day’s other creditors.
Rule of Law
Issue
Holding and Reasoning (Gabriel, J.)
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