Fett Roofing and Sheet Metal Co. v. Moore
United States District Court for the Eastern District of Virginia
438 F. Supp. 726 (1977)
Donald Fett (the corporation's sole shareholder and president) incorporated Fett Roofing with a small initial investment. He later advanced money to the company through three personal loans, then backdated deeds of trust on the company's assets to secure those "loans" after the company became insolvent. When Fett Roofing went bankrupt owing over $400,000, the bankruptcy judge found the company had been undercapitalized from the start, that Fett's payments were really necessary capital contributions rather than loans, and that the deeds of trust were backdated to defraud other creditors. Fett appealed the ruling that subordinated his claims to those of other creditors.
Whether, in a bankruptcy proceeding, the claims of the sole shareholder and president of an undercapitalized corporation may be subordinated to the claims of the corporation's other creditors.