In re Polk (Ch. 11 Case No. 18-30913, Adv. Case No. 19-03007)

The debtor’s business, an LLC, entered into two revenue based factioning agreements in which the LLC sold its future receivables.  The LLC was to collect and deposit its receivables into a bank account.  The Purchaser would be repaid by debiting by ACH a fixed amount each business day.  The debtor personally guaranteed the contracts.  The debtor’s business had financial problems and could no longer make the daily payments.  The debtor placed a “stop payment” order on the ACH debts to the Purchaser.  The debtor filed a Chapter 11 case.  

The Purchaser argued its claim against the debtor was nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), and (B), (4) and (6).  The court held that the debtor had not made false representations in the contracts or phone calls with the Purchaser.  The court held the transactions were actual sale contracts and that the LLC’s receivables were the Purchaser’s property.  The Purchaser’s embezzlement claim failed because it failed to show that the debtor appropriated the property for a use other than for which it was entrusted.  Finally, the court held there was no willful and malicious injury to the Purchaser.

Thursday, February 13, 2020