Commercial Banking, Collections, and Bankruptcy

In action by bankruptcy Trustee seeking to avoid $25 million transfer to defendant-bank by defendant-corporation that borrowed said money from said bank to purchase stock of subsidiary corporation, where transfer was used to pay off said bridge loan, Dist. Ct. did not err in dismissing Trustee’s complaint, even though Trustee claimed that said transfer was fraudulent, where subsidiary corporation subsequently defaulted on loans made by other creditors, who subsequently filed instant involuntary bankruptcy petition. Section 546(e) of Bankruptcy Code contains safe harbor that precludes Trustee from seeking to avoid transfers made by or to financial institutions in connection with securities contract. Ct. of Appeals found that safe harbor in section 546(e) applied to instant purchase of stock of private corporation. Moreover, state law that allowed same avoidance was preempted by section 456(e).

Bankruptcy Ct. did not err in reopening bankruptcy case of debtor who sought discharge of $499,000 debt owed to creditor and to discharge lien on debtor’s interest in company. Record showed that creditor obtained $499,000 state-court judgment against debtor, who in turned filed for bankruptcy protection. Bankruptcy Ct. thereafter rejected creditor’s claim that instant debt was procured through debtor’s fraud and thus was not dischargeable. Creditor thereafter obtained state-court judgment that found that only debts secured by real property can be avoided. As such, Bankruptcy Ct. had jurisdiction to reopen debtor’s bankruptcy proceeding to address effect of second state-court action and to discharge instant debt. Also, Bankruptcy Court did not err in failing to allow creditor in renewed proceeding to contest debtor’s valuation of interest in business at below $15,000, where creditor failed to contest said valuation in original bankruptcy proceeding.