Boyer v. Crown Stock Distribution, Inc.

Old Crown Unlimited Machine, Inc. (Old Crown) (defendants) agreed to sell all its assets for $6,000,000 to Kevin Smith, who formed a new company, New Crown, to make the purchase. New Crown paid with $3,100,000 in cash (from a bank loan) plus a $2,900,000 promissory note back to Old Crown, with both the bank loan and the note secured by the very assets being purchased — leaving New Crown's newly acquired assets doubly encumbered. After closing, Old Crown distributed the $3,100,000 cash to its own shareholders and shut down; New Crown ultimately failed and filed for bankruptcy liquidation. The bankruptcy trustee (plaintiff) sued to avoid the original sale as a constructive fraudulent transfer and recover the purchase price for New Crown's creditors. The bankruptcy court and district court both agreed the transaction was fraudulent, and the Old Crown parties appealed, arguing the company simply failed for unrelated business reasons.