Pryor v. Tiffen (In re TC Liquidation LLC)

Debtor LLC, an "S" corporation, declared chapter 11 bankruptcy in February 2003 and remained in chapter 11 bankruptcy until June of 2004, when the case was converted to one under chapter 7. A trustee who was appointed to administer the debtor's chapter 7 bankruptcy estate learned that individuals who purchased a company from their parents borrowed money so they could acquire the company and other businesses and received salary increases and dividend payments from the debtor which allowed them to repay the loans and to pay taxes they owed on profits the debtor made, and he filed adversary proceedings against those individuals, seeking a determination that he could recover those payments. The court found that the trustee was entitled under 11 U.S.C.S. § 548(a)(1)(A) to recover payments defendants received so they could pay taxes they owed on profits the company made, but was not entitled to recover money defendants received as salary increases or dividends which they use to repay debts they owed to their parents and other lenders. The debtor did not derive any value from dividends it paid defendants so they could pay their taxes.