This case identifies (a) the characteristics of a non-statutory insider subject to a trustee's avoidance of preferential transfers and (b) the perils of transferring titles among relatives and closely held corporations pre-petition in an effort to remove personal property from the debtor's estate. It also illustrates the problems inherent in choreographing pre-petition debt collection and repossessing collateral from family members and their closely held corporations.
The plaintiff/trustee sought to avoid as preferences various pre-petition transfers of purported loan collateral/personal property by the debtor to the creditor. Unfortunately, it was in the context of the debtor/son and creditor/father in a tangled transaction which involved their respective closely held companies and repossession of the intended collateral by the creditor which secured the obligation. The lender did take a judgment against the debtor after default on the loan and moved to enforce the judgment.
The court held that the lender, the father's closely held corporation, received avoidable preferential transfers from his son and his son's closely held corporation, when recovering the collateral that secured the son's obligation. The lender was deemed a non-statutory insider due to (a) the father's close and controlling relationship with the lender company and with his son, individually, (b) the staging of the "repossession" by the father and the father's attorney, and (c) the bogus transfer of debtor's assets to the lender, but debtor's continuing retention and possession of the collateral.
The court also found the personal use, and casual and indiscriminate transfers and titling of the loan collateral (motor vehicles), was evidence of the debtor's rights and interests in his businesses' property, thus relegating that business property to be property of his, the debtor's estate.