In Re Image Worldwide, Ltd.

139 F.3d 574 (7th Cir. 1997)

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Nature of the Case

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Facts

Steinberg was the sole shareholder, sole officer, and sole director of Image Marketing, Ltd. (IM). IM leased space from FCL Graphics, a printing company that did all of the printing for IM. In 1992, IM obtained a line of credit from D secured by a first lien against substantially all of IM's assets. By June 1993, IM had borrowed $ 300,000 on its line of credit. At the end of 1993, IM was several hundred thousand dollars in debt to trade creditors. In December 1993, Steinberg incorporated Image Worldwide, Ltd. (IW). Again, Steinberg was the sole shareholder, officer, and director of IW. IW leased the same space from FCL as IM, used the same suppliers, and had many of the same customers. IW leased the same space from FCL as IM, used the same suppliers, and had many of the same customers. In early 1994, Steinberg liquidated IM. D knew of and cooperated in the liquidation of IM. D allowed Steinberg to use the money obtained from the liquidation of IM to pay down IM's trade debts. Bank never required IM to pay off its loan, even when its accounts receivable declined to zero in 1994. Bank demanded that IW guarantee IM's $300,000 debt. IW executed the guarantee on May 27, 1994. It was secured by a first lien on substantially all of IW's assets. IW never borrowed any money from D. d's consideration for the guarantee was its allowing IW to stay in business. Between May 27, 1994, and when IW was forced into bankruptcy, IW paid principal and interest on the loan as it became due. IM still owed $ 200,000 to FCL Graphics. D lent $ 200,000 to Steinberg to pay this debt. The bank paid the proceeds from this loan directly to FCL. The loan was secured by all of IW's accounts receivable. As of the date of its bankruptcy, IW had paid down $72,076.49 in principal and $26,863.45 in interest on the loan. At trial, D stipulated that the guarantees made IW insolvent. In August 1995, FCL filed an involuntary chapter 7 petition for bankruptcy against IW. P was appointed as the trustee of IW's bankruptcy estate. D obtained relief from the automatic stay and collected IW's accounts receivable to pay down the debts guaranteed by IW. D collected $444,507.55 from IW, including the amounts paid prior to the bankruptcy. P sued to recover the amounts transferred to D claiming under §544(b) that the transfers to D were fraudulent transfers in violation of the Uniform Fraudulent Transfer Act (UFTA), 740 ILCS 160/5 because IW never received reasonably equivalent value for its guarantees to D. The bankruptcy court ordered D to disgorge the amounts it received from IW. The district court affirmed. D appealed.