South-Western Legal Studies in Business

Former Bank Director Not Insider for Purposes of Preferential Transfer Issues
Description Appeals court held that a long retired director of a bank, accused to making preferential payments to the bank prior to filing bankruptcy, was not an insider, so there was no preferential treatment issue requiring the bank to repay the money to the bankruptcy trustee.
Topic Bankruptcy Law
Key Words Chapter 7; Preferential Transfers; Former Director
C A S E   S U M M A R Y
Facts Kunz filed Chapter 7 bankruptcy in 2002. Rupp was the court appointed trustee. Kunz had been involved in the formation of United Security Bank and had been a member of the board of directors until he resigned in 1990. He held the title “director emeritus” but had no authority and had not attended any board meetings, but received an annual payment of about $5,000 and is listed in bank materials. Prior to filing bankruptcy, Kunz had made payments to creditors United Bank, Comerica Bank and Wells Fargo Bank. The trustee contended that the payments to United were preferential relative to other creditors and sued to recover funds Kunz paid to United. After complicated proceedings, the matter was appealed.

Kunz’s title of director emeritus of United did not make Kunz a director of the bank or an insider of the bank. As such, there is no preferential avoidance issue here, so United need not repay the money paid by Kunz prior to filing bankruptcy. Per se insiders are officers and directors. Other parties who may be classified as insiders are based on the professional or business relationship and requires a weighing of the evidence. Kunz was long removed from the control of United Bank business and was not an insider.

Citation In re Kunz, 489 F.3d 1072 (10th Cir., 2007)

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