New Cases For the Week of July 2, 2001 - July 6, 2001

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July 6, 2001

Case

Court

Holding

Warsco v. Preferred Technical Group
(DBN Subscription Required)
7th Cir.  When a prepetition asset purchase transaction from a debtor was structured so that the buyer: (i) paid cash for assets and (ii) paid separate cash to an unsecured creditor of the debtor for a purchase of the creditor's note (each transaction being conditioned upon the other), the payment to the unsecured creditor was not, as a matter of law, immune from preference avoidance.  

When a third party pays a creditor of the debtor after having purchased the debtor's assets, the fundamental question in determining whether that payment was property of the debtor is whether the funds used to make the payment were part of the purchase price for the assets.  If the funds the third party used to pay the creditor were consideration for the debtor's sale of its assets, then those funds would have been part of the debtor's estate and would have been available for distribution had they not been transferred to the creditor. On the other hand, if the funds used to pay the creditor were not part of the sale price for the debtor's assets, then it is unlikely that the payment diminished the debtor's estate. Instead, the transaction between the third party and the creditor likely was an independent transaction that did not affect the property in the debtor's estate available for distribution.

In re Haworth
(DBN Subscription Required)
10th Cir. The lower courts did not err in finding that a "Monad Trust" into which the debtor had transferred real property prior to bankruptcy was merely a name "without a legal entity," rendering the transfer a nullity.

July 5, 2001

Case

Court

Holding

In re Four, Three, Oh, Inc.
(DBN Subscription Required)
3rd Cir. The Bankruptcy Court did not err in overturning the arbitrary decision of a zoning board pertaining to real property sold by a bankruptcy estate.

July 3, 2001

Case

Court

Holding

In re Regional Building Systems, Inc.
(DBN Subscription Required)
4th Cir.  Although confirmation of a Chapter 13 plan does not discharge liens not addressed by the plan, the corollary is not true in Chapter 11.  Where a creditor which had asserted an unsecured proof of claim attempted to amend the proof of claim to a secured proof of claim postconfirmation (and after creation of a settlement fund to which the putative lien could attach), the court did not err in denying the amendment.  Confirmation of a Chapter 11 plan revests all of the property of the debtor free and clear of liens, except as stated in the plan.  Since the plan made no provision for the lien (which had not been asserted at the time of confirmation), the debtor's property was free and clear of that interest.

In Chapter 13, the debtor's property revests free and clear of liens which are "provided for" in the plan. In contrast, in Chapter 11, property revests free and clear of liens if the property (as opposed to the liens) is "dealt with" by the plan.

 
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