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Home / Case News / Case Summaries / A Trustee Establishes Insolvency by Preponderance of the Evidence-Based upon the Presumption of Insolvency and the Testimony of the Trustee’s Expert

A Trustee Establishes Insolvency by Preponderance of the Evidence-Based upon the Presumption of Insolvency and the Testimony of the Trustee’s Expert

April 30, 2019, Massachusetts – The Chapter 7 Trustee Gary W. Cruickshank for the estate of Debtor Boston Grand Prix, LLC (BGP) brought a lawsuit against the Defendant, George R. Roberts Company (GRRC) to avoid two allegedly preferential transfers made by checks payable to GRRC in the total amount of $278,326.63.

The Trustee asserted that the alleged payments were paid from funds held in BGP’s bank account and thus constituted transfers of property of the Debtor for purposes of subsection 547(b). Also, the Plaintiff contended that the alleged payments were made to GRRC, who was the creditor of the Debtor and that the payments were made on account of an antecedent debt owed by the Debtor to GRRC. The Trustee also asserted that the Debtor was presumptively insolvent in the ninety days before the petition date under § 547(f). GRRC contended that the Debtor was solvent on April 25, 2016. GRRC submitted its expert’s going concern valuation and balance sheet and noted that the Trustee presented no testimonial or documentary evidence to rebut the same. GRRC contended that BGP was an operating business and there was no evidence that it was on its deathbed.

The Court concluded that the Trustee sustained his burden of establishing insolvency by a preponderance of the evidence based upon the presumption and the expert testimony. The Court found that GRRC did not prove that the Debtor was solvent on April 25, 2016, the date selected by the expert witness as the initial test date and the date that the two alleged payments cleared the bank. The Court agreed with the Trustee’s contentions that the expert’s assumptions and use of going concern valuations were unwarranted, unsupported, and overlooked “red flags” that would have undermined his assumptions and methodologies. The Court added that the testimony of its expert, who correctly determined that use of a liquidation value for the assets set forth on a recreated balance sheet was appropriate, as the Debtor did not maintain organized financial records or a system to prepare financial statements. Since there was no direct evidence of the parties’ intent to have the transfer be a contemporaneous exchange for new value, the Court concluded that the creditor failed in its burden of establishing a defense to liability under § 547(c)(1). The Court ruled in favor of the Trustee