Bankruptcy – Avoidance Action – Guaranty – Sister Company – Aircraft

PTM Technologies, Inc. v. Carolina Bank (Lawyers Weekly No. 12-05-1068, 11 pp.) (William L. Stocks, J.) Case No. 10-50980, Adversary No. 11-6063; M.B.N.C.

Holding: Although the debtor did not receive any direct benefit when it guaranteed a promissory note for its sister company, the loan was used to buy an aircraft that was arguably used to promote the income stream that benefitted all related companies, including the debtor.

The debtor is not entitled to summary judgment on its claim to avoid the guaranty.

The general rule is that obligations incurred by a debtor solely for the benefit of a third party are treated as not supported by a reasonably equivalent value. However, there is an exception to the general rule where a debtor receives an indirect benefit from paying or guaranteeing the obligation of a third party.

The defendant-lender produced evidence regarding the relationship among the debtor and several other companies with common ownership, common management and coordinated operations. The airplane acquired by Blue Ridge Airlines, LLC was used for the benefit of the other companies by using the airplane to call on customers or prospective customers in order to promote the products fabricated by Alternative Brands, Inc. and sold by Renegade Tobacco Co. and thereby to enhance the income stream that fed all of the companies, including the debtor. This evidence is sufficient to raise an issue as to whether the use of the airplane to promote and enhance the business of Alternative Brands indirectly benefitted the various companies involved in the coordinated and interrelated business operations. The lender has raised an issue as to whether the debtor received value in connection with the transaction in which the debtor guaranteed the Blue Ridge note.

The lender also argues that the obligation incurred by the debtor is minimal or zero. Blue Ridge’s obligation to the lender was guaranteed by seven other guarantors and was also secured by a lien on the airplane which, according to the lender’s evidence, had a value significantly greater than the amount owed under Blue Ridge’s promissory note. While there may be questions regarding the lender’s valuation of the plane or whether the financial condition and viability of the other guarantors was such that their guaranties reduced the debtor’s exposure on its guaranty, these are not questions that are resolvable by summary judgment.

In addition, the debtor failed to show that it was or became insolvent when the guaranty was executed.

Motion denied.