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The Delaware Bankruptcy Insider is a premier blog designed to bring its readers a comprehensive analysis of the latest Delaware corporate bankruptcy news and rulings. Brought to you by Ashby & Geddes, P.A.
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- Delaware District Court Finds Section 506(b) Does Not Limit Allowability of Unsecured Claims for Contractual Postpetition Attorneys’ Fees
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Court Addresses Standards for Insolvency, Piercing the Corporate Veil Under Delaware Law, Avoiding Alleged Fraudulent Transfers, and More
Burtch v. Opus, LLC (In re Opus East, LLC), Adv. Proc. No. 11-52423 (MFW), 2015 WL 1404959 (Bankr. D. Del. March 23, 2015)
In this Opinion, Judge Mary F. Walrath addressed 67 counts brought by a chapter 7 trustee (the “Trustee”) against former fiduciaries of the debtor and related business entities. The Trustee alleged theories of piercing the corporate veil, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, successor liability, avoidance of fraudulent and preferential transfers, unjust enrichment, disallowance and equitable subordination of claims, revocation of certificate of dissolution, imposition of constructive trust, tortious interference with contract, conversion and conspiracy to commit conversion. After trial on the merits, Judge Walrath granted partial judgment and pre-judgment interest in favor of the Trustee on certain fraudulent transfer and preferential transfer counts against two defendants, and granted related relief to allow the Trustee to revoke a certificate of dissolution against one of the affected defendants, and to disallow the claims of both affected defendants pursuant to section 502(d) and (j) of the Bankruptcy Code pending return of the avoided transfers. Judge Walrath granted judgment to defendants on the remaining counts.
In the lengthy but informative opinion, Judge Walrath discusses in depth concepts such as the tests for insolvency, piercing the corporate veil under Delaware law, and the standard for avoiding alleged fraudulent transfers. Judge Walrath also clarified that, notwithstanding decisions such as Serrano v. Gulf Chem. Corp. Ltd. (In re Caribbean Petroleum LP), 322 B.R 726, 728 (D. Del. 2005), when a defendant is an “affiliate” of a debtor within the statutory language of section 101(2) of the Bankruptcy Code based on common ownership, no additional showing of control is required to establish that the defendant is an “insider” under section 101(31) of the Bankruptcy Code. Additionally, in addressing the ordinary course of business defense under section 547(c)(2)(A) of the Bankruptcy Code with respect to three defendants, Judge Walrath found that, absent other unusual activity, transfers were subjectively ordinary where the average time from invoice to date of payment in the preference and historical periods varied by 15 days, 14 days and 8 days, respectively.