Transfer of Interests in Family Company May not be Avoidable Preference

The U.S. Bankruptcy Court for the Eastern District of New York denied a debtor’s motion to reconsider the dismissal of the debtor’s 547 preference action where the debtor tried to avoid the transfer of his interest in a family company.

In that case, the debtor was removed from a family-owned company by other members of the family after the debtor was caught diverting profits from his co-members. The family members voted to remove the debtor and transferred debtor’s shares to themselves in exchange for payment of the fair market value of debtor’s interests pursuant to the operating agreement.

The defendant-family members moved to dismiss the complaint on the grounds that the debtor received reasonably equivalent value for his interests. The court agreed, finding that the transfer caused no detriment to other creditors since the debtor received the reasonably equivalent value.