New Life Adult Medical Day Care Center v. Failla & Banks, LLC, et al. (In re New Life Adult Medical Day Care Center, Inc.
New Life Adult Medical Day Care Center v. Failla & Banks, LLC, et al. (In re New Life Adult Medical Day Care Center, Inc., ___BR___, 2014 WL 6851258 (Bankruptcy Court, D. NJ 2014): Held that a fraudulent transfer, made by the debtor, could NOT be avoided and recovered from the recipient of the fraudulent transfer, because recovering the fraudulent transfer would not benefit the bankruptcy estate, and 11 USC 550(a), the Bankruptcy Code section governing recovering fraudulent transfers, only allows recovering a fraudulent transfer where recovering the fraudulent transfer would "benefit the bankruptcy estate" of the debtor. In Medical Day Care Center, recovering the fraudulent transfer would NOT benefit the "bankruptcyestate" of the debtor, because the debtor’s chapter 11 joint liquidating plan provided for full payment of all creditor claims. The court noted that because all creditors had been paid in full, and because there would be no reorganized entity, the only entity that stood to benefit from the avoidance of the fraudulent transfer was the equity holder of the debtor. The court noted that recovery that solely benefits the equity owner does not constitute a "benefit for the estate" under § 550(a). Even applying the "broadest application of the ‘benefit of the estate’ requirement [of section 550(a)], there is no conceivable benefit to the state, either directly or indirectly," id. at 6, when the debtor’s plan will already pay 100% of creditor claims.