In re: Fitness Holdings Int'l, No. 11-56677 (9th Cir. 2013)
Annotate this CaseFitness Holdings, the debtor in this bankruptcy case, was a home fitness corporation. At issue was whether debtor's pre-bankruptcy transfer of funds to its sole shareholder, in repayment of a purported loan, could be a constructively fraudulent transfer under 11 U.S.C. 548(a)(1)(B). The court held that a court has the authority to determine whether a transaction created a debt if it created a right to payment under state law. Because the district court concluded that it lacked authority to make this determination, the court vacated the decision and remanded for further proceedings.
Court Description: Bankruptcy. The panel vacated the district court’s judgment affirming the bankruptcy court’s dismissal of a complaint alleging that a debtor’s pre-bankruptcy transfer of funds to its sole shareholder, in repayment of a purported loan, was a constructively fraudulent transfer under 11 U.S.C. § 548(a)(1)(B). The panel held that a court has the authority to recharacterize a purported loan as an equity investment for purposes of § 548, and that a transaction creates a debt if it creates a “right to payment” under state law. Because the district court concluded that it lacked the authority to make this determination, the panel remanded the case for further proceedings.
The court issued a subsequent related opinion or order on May 20, 2013.
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