We owned and operated an LLC and filed a chapter 7 bankruptcy last year. The attorney for the trustee has filed an adversary proceeding against us personally claiming Improper draws. He is claiming the LLC was insolvent and we were not allowed to make any draws whatsoever for our personal salary. The way he is determining that the company was insolvent is that we had some creditors that were not paid timely due to our not being paid from a contract we had with another company. We had accounts receivable, but had not collected on them and thus had some creditors directly related to those accounts that did not get paid timely. He also has claimed the full amount of draws we made but has ignored any investments or repayments we made back to the company in the same timeframe.
You should consult with an experienced local bankruptcy attorney who handles adversary proceedings. Defending yourself in an adversary proceeding is never a good idea. Use Avvo to search for a local attorney. Good luck.
I would have to look at the pleadings and the evidence, but generally speaking if you file a personal Ch. 7 and own and operate an LLC, the Trustee succeeds to your interest in the LLC. If the trustee abandoned your interest in the LLC then I do not see any basis for an adversary proceeding.
If the LLC filed a Ch. 7, and you drew salary, then that might be an issue.
However, salaries even in an LLC are considered priority claims, so its possible that you can defend by asserting a setoff. In addition, there may be other defenses, such as new value for investments and repayments you made in the interim.
The lynch pin is of course WHEN the transfers occurred, either within 90 days, or in your case up to a year prior to filing bankruptcy.
11 USC 547(c)(4) provides that you can introduce evidence of "new value" to prove that whatever you received as an alleged preference paid to an "insider" may be offset by new value placed into the company in the form of investments or repayments.
However, your question implies that post-petition, you took out advances for salaries. If that's the case then another trigger point occurs, that is an administrative claim for post-petition wages. That is the trustee would owe you the wages anyway, and still owns the accounts receivable.
However, that said, it also sounds like the trustee deemed the accounts receivable "uncollectible" and therefore probably proposes giving you the receivables and getting cash back from you. But, if you're in a Ch. 7, its unlikely you're collectible either absent the LLC.
Seems like you're in the middle of a shakedown.
This is the time where, if I were you, I would sit down with my bankruptcy lawyer and go through this very carefully.
In addition, there are defenses to insolvency of an LLC. Those defenses include offsets for unavoidable accounts receivable that are unpaid. That is the trustee must PROVE the company was insolvent at the time of the transfers. If you filed a personal Ch. 7, and the company was solvent on the date of filing the petition, then its subsequent insolvency must be proved. Having unpaid receivables does not make the company insolvent. That is a cash flow problem.
Again, talk to your lawyer. If you don't have one I strongly advise you to retain one. Click on "Find a Lawyer" above and locate an attorney in your area who handles bankruptcy law.
This is a public forum. Any questions or answers published here should not be construed as the giving or receiving of legal advice or the formation of any attorney-client relationship. You should consult with a competent attorney in the jurisdiction where your legal issues are pending and get good, solid legal advice. This being a public forum, those answers you do read are merely given for informational purposes only.
You need to hire a very experienced bankruptcy attorney to defend this adversary proceeding. Trustees are successful in litigating these types of preferential transfer claims through adversary proceedings. Many of these types of claims are also settled by way of compromise. Without an attorney, though, you are at a major disadvantage against counsel for the trustee. You need to employ counsel ASAP, to prevent the adversary proceeding from going into default.
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