Presumption of Insolvency

[ENortham]

What is the name of your state? Maryland

"...the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition."

So, can you argue that someone WASN'T insolvent???

Next paragraph in the bankruptcy code book talks about the trustee having the burden of proving insolvency...why would you need to prove it if cannot be argued?

Don't really understand what a lot of this means, but the boss has sent me on a research mission...would like to be able to show that they weren't insolvent I assume.

 

[azatty]

"...the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition."

So, can you argue that someone WASN'T insolvent???

Of course. It is only a presumption, and presumptions are always rebuttable.

There are different tests for insolvency. The first, common sense test is the "balance sheet test," which means that liabilities exceed assets. The second test is the "debt payment test," under which the inquiry is whether the debtor was paying its debts in the ordinary course. Under the balance sheet test, lots of people are insolvent. Under the debt payment test, though, many of those technically insolvent people are not insolvent.

Because you quoted 11 U.S.C. §547(f), I assume the boss is getting sued by a bankruptcy trustee or debtor-in-possession to recover what we call a "preference." The "next line" you cited is §547(g), which simply identifies who carries what burden of proof. The trustee does not have to "prove" insolvency, because s/he is entitled to the presumption identified in subsection (f). What subsection (g) actually states that the trustee has the burden of proof to show that a transfer under §(b) is avoidable, while a creditor (maybe the boss?) has the burden of proof to show a transfer is not avoidable if the creditor's defense to the preference action falls under §547(c).

As a practical matter, a debtor is usually insolvent for a long period before the bankruptcy filing, so proving that the debtor was not insolvent is an uphill battle that isn't fought too often. Usually, it's more productive to focus on the defenses available under §547(b) and (c) or to take steps to settle the case. You're at a distinct disadvantage if you're trying to defend against a preference recovery action yourselves. Consult a local bankruptcy attorney on the issue.

 

[ENortham]

Haha well, the boss is a bankruptcy attorney. He is representing the non-bankrupty party (whatever that is called ) and while in court last week, the opposing attorney claimed that insolvency cannot be rebutted. I guess bossman assumed that the attorney had seen some recent bankruptcy case supporting that...but everything I have found on the internet shows that it can be argued.

I think he's just looking for some sort of concrete evidence that shows you can argue insolvency...haven't found a case or anything in my book yet. Did find this:
http://wrf.com/publication_newsletters.cfm?sp=newsletter&year=2005&ID=17&publication_id=12003&keyword=

But again, no specific citings for him to use.

I'll let him know what I've found...thanks a bunch

 

[azatty]

Good Lord, you can't be serious. However, I understand that when you hear something absolutely crazy in Court, you have to wonder if it's crazy enough to be true. Here are two cases obtained after ten seconds on Westlaw.

In re TWA, Inc. Post Confirmation Estate, 327 B.R. 706 (Bankr.D.Del 2005). "Section 547(f)creates the rebuttable presumption that the debtor was insolvent on and during the 90 days immediately preceding the date of the filing of its petition in bankruptcy."

In re Spinnaker Industries, Inc., 328 B.R. 755 (Bankr.S.D.Ohio 2005). "[Section 547(f)] is a rebuttable presumption and 'in the absence of evidence to rebut the presumption, the Trustee is entitled to rely on the § 547(f) presumption to establish the debtor's insolvency.'"

The article you linked simply repeats what the Code says.

I am entirely unaware of any cases stating that the presumption of insolvency may never be rebutted. However, there is case authority stating that financial information contained in the schedules and statement of financial affairs alone may not rebut the presumption of insolvency. In re Enron Corp. 318 B.R. 655, 663 (Bankr.S.D.Tex. 2004). However, that language may be dicta. In that case, the schedules and statements contained disclaimers relating to the accuracy of information, which may be the reason the Court held such. Also, in an earlier unreported Enron ruling, the Court considered the use of a Form 10-Q as evidence of solvency.

 

[ENortham]

Awww, he's getting old and forgetful, but we still love him around here. I'll leave out the "can't be serious" part and give him the rest of the wonderful information you provided...I have a Premise program on my computer to look up cases but he wasn't particularly satisfied with the cases I found. Thank you again, forever indebted.