Fiduciary Duty To Creditor Denied
In In re Fundamental Long Term Care, Inc., 2015 WL 1286012 (March 20, 2015), the United States Bankruptcy Court, for the Middle District of
Florida ruled that a Chapter 7 trustee
failed to satisfy the burden of showing that the director of a financially
distressed corporate parent had allowed its subsidiary to be sold for less than
what it was worth to a newly formed entity, which was essentially used as a
shell to retain the subsidiary's liabilities while its assets were spun off to
other entities, in alleged breach of fiduciary duties that the director owed to
corporate creditors. There was no evidence that the director, who decided to
proceed with the sale only after consulting with other board members and
professionals and ruling out bankruptcy as an alternative, knew that the entity
to which the subsidiary was transferred was a mere shell or that its assets
would be spun off. Moreover, while the trustee complained that the $100,000
received for the subsidiary was woefully inadequate, the evidence was to
contrary, given that the subsidiary was never intended to operate at a profit
but merely to provide management services for nursing homes operated by the
corporate parent and its sister company, and that it did not own the furniture,
fixtures, or equipment at the leased office out of which it operated and was
not even a party to the lease. While the subsidiary did own computers with a
book value of $159,280, a bankruptcy judge in Florida remarked that
"computer equipment had virtually no value soon after being
purchased." According to the judge, "in the bankruptcy