SOLVENCY COMPENDIUM

The Solvency Compendium consists of 19 landmark court cases relating to insolvency and fraudulent conveyance issues. These rulings have significantly raised the stakes for Boards of Directors and Special Committees when fulfilling their fiduciary duties.

 

1. United States of America v. Tabor Realty Corp., et al., 803 F.2d 1288 (3rd Cir. 1986) - Fraudulent Conveyance Law can be Applied to a Leveraged Buy-Out if it is Found that the Lenders Did Not Act in Good Faith
2. In The Matter of Ohio Corrugating Co., 70 BR 920 (Bankr. N.D. Ohio 1987) - A Money Judgment may be had Against any Entity that Benefits from Fraudulently Conveyed Property
3. Wieboldt Stores, Inc. v. Schottenstein, et al., 94 B.R. 488 (N.D. Ill 1988) – If a Leveraged Buy-Out Leaves a Company Insolvent and it was Done in an Attempt to Deceive Creditors, a Fraudulent Conveyance can be Found as well as a Breach of Fiduciary Duty
4. In Re: Sierra Steel, Inc., 96 B.R. 275 (Bankr. D. CA 1989) – Generally Accepted Accounting Principles are Found to be Influential but not Binding
5. In The Matter of Taxman Clothing Co., Inc., 905 F. 2d 166 (7th Cir. 1990) – If a Company is not at a Point of Peril, the Proper Standard for Valuing Assets is on a Going Concern Basis
6. Metropolitan Life Insurance Company v. RJR Nabsico Incorporated, 906 F.2d 884 (1990) – A Solvency Opinion Provides Assurance to Prior Creditors that they will Continue to Receive Payment
7. In Re: The O’Day Corporation, 126 B.R. 370 (Bankr. D. Mass. 1991) - Unsecured Creditors Were Given Preference above the Primary Creditor Because the Primary Creditor Should Have Known the Target was Insolvent
8. Crowthers McCall Pattern, Inc. v. Lewis, 129 B.R. 992 (SDNY 1991) – Leveraged Buy-Out (“LBO”) Lenders are Obligated to Reasonably Determine LBO Does not Violate the Covenants of Other Creditors
9. Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corporation, et al., 1991 Del. Ch. Lexis 215 – The Importance of Deal Transparency and Knowing the Full Financial Structure of a Transaction so a Lender can Protect its Investment
10. In Re: Miller & Rhoads, Inc., 146 B.R. 950 (Bankr. D. Va. 1992) - The Standard by Which a Company Should be Valued on a Liquidation Basis v. Going Concern Basis
11. In Re: Bay Plastics Inc., 187 B.R. 315 (Bankr. C. D. Cal. 1995) – Selling Shareholders could be Exposed to Fraudulent Attack if the Leveraged Buy-Out was not a Result of a Legitimate Transaction
12. In Re: Structurlite Plastics Corporation, 193 B.R. 451 (Bankr. D. Ohio 1995) – Undercapitalized and Over-Leveraged Transaction without Adequate Consideration can Result in a Fraudulent Conveyance
13. Klang v. Smith’s Food and Drug Centers, 702 A.2d 150 (Del. 1997) – Boards of Directors are Entitled to Rely on a Solvency Opinion
14. In Re: Trans World Airlines, Incorporated, 134 F.3d 188 (1998) – The Proper Interpretation of the Definition of Insolvency
15. In Re: Lids Corporation, 281 B.R. 535 (Bankr. D. Del. 2002) – There is no Definitive Accounting Methodology for Determining the Solvency of a Company
16. Payless Cashways, Inc. v. Hitachi Power Tools, 290 B.R. 447 (Bankr. D. MO 2003) – Investment Banker’s Advice Falls on Deaf Ears Resulting in the Demise Payless Cashways
17. In Re: Heilig-Meyers, 319 B.R. 447 (Bankr. E.D. Va. 2004) - To Prove Insolvency the Balance Sheet Test Methodology, an Independent Financial Opinion is Needed
18. In Re: American Classic Voyages Co., 2007 Bankr. Lexis 1394 – A Valuation Expert with Extensive Experience Provides Substantial Credibility
19. North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, 2007 Del. Lexis 227 (Del. 2007) – The Creditors of a Corporation that is Insolvent or in the Zone of Insolvency Cannot Assert a Direct Claim for Breach of Fiduciary Duty Against the Directors of the Corporation