In re Machinery, Inc.
United States Bankruptcy Court for the Eastern District of Missouri
342 B.R. 790 (2006)
General Electric Capital Corporation (GE) (plaintiff) held a senior security interest in aerial lifts and their proceeds leased by Machinery, Inc. (Machinery), while Union Planters Bank (Union Planters) (defendant) held a junior blanket lien on Machinery's inventory, accounts, and proceeds; after Machinery filed Chapter 11, the reorganization plan attempted to grant Union Planters a senior interest in cash proceeds, but the bankruptcy court instead confirmed GE's senior priority. Machinery deposited all cash proceeds, including lift proceeds, into its general Union Planters bank account, and after Machinery defaulted in late 2002, GE demanded the lift proceeds; Union Planters refused, and GE sued, alleging Union Planters had colluded with Machinery to violate GE's rights by actively negotiating plan terms and participating in Machinery's operations.
Whether a bank that receives cash proceeds deposited into a debtor's general account, while actively negotiating reorganization terms and participating in the debtor's operations, takes those proceeds free of a competing senior secured party's interest, absent evidence of actual collusion to violate that party's rights.