CFO Who Paid Attorney $10,000 to File Company’s Bankruptcy Papers Must Repay Sum to Estate

Wednesday, April 11, 2018

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Bankruptcy Appeals Panel

CFO Who Paid Attorney $10,000 to File Company’s Bankruptcy Papers Must Repay Sum to Estate

Honoring of Check After Papers Were Filed Created Postpetition Transfer Which Required Court Approval, Judges Declare

By a MetNews Staff Writer

A man who paid $10,000 to an attorney to file bankruptcy for a company of which he was chief financial officer must repay that sum to the estate because the check was cashed after the bankruptcy papers were filed, thus created an unauthorized postpetition transfer, the Ninth U.S. Circuit Court of Appeal’s Bankruptcy Appeals panel has held.

The decision, rendered Friday, requires that appellant Matthew Lewis pay $10,000 to the trustee in bankruptcy. It relies on the U.S. Supreme Court’s 1992 decision in Barnhill v. Johnson that a payment is made not when a check is proffered but when it is honored by the bank.

That case dealt with the question of whether the payment was made within 90 days before the filing for bankruptcy protection, thus constituting a preference. The case just decided deals with whether the honoring of the check after the papers were filed constituted a payment requiring court approval.

A bankruptcy judge granted summary judgment to the trustee who sought the $10,000 pursuant to Bankruptcy Code §549(a) which says that, subject to exceptions, “the trustee may avoid a transfer of property of the estate…that occurs after the commencement of the case.”

The panel said:

“This is an issue of first impression before any appellate court in the Ninth Circuit since Barnhill. We agree with the bankruptcy court, and we AFFIRM.”

The panel reasoned:

“Here, the undisputed facts established that the Check was honored postpetition on March 22, 2016, and that the payment made by the Check was not authorized by the Code or the bankruptcy court. Lewis articulated no defenses available under § 549(b) or (c); they would not apply in any event. The undisputed facts established the necessary elements for an avoidable postpetition transfer under §549. Because there were no genuine issues of material fact in dispute, Trustee was entitled to judgment as a matter of law. Accordingly, the bankruptcy court did not err in granting her summary judgment and ordering recovery of the $10,000 (plus costs) from Lewis.”

The case is In re: Cresta Technology Corporation, No. NC-17-118 6-BSTa.