Bankruptcy-Insolvency Assessment

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7^th Circuit Court of Appeals

Case Name: In the Matter of International Supply Co.

Case No.: 23-2965

Officials: Easterbrook, Jackson-Akiwumi, and Lee, Circuit Judges.

Focus: Bankruptcy-Insolvency Assessment

Hofmann oversaw several businesses, including Games Management and International Supply. Games Management borrowed about $2.7 million from Citizens Equity First Credit Union (the Lender), with Hofmann providing a payment guarantee. When Games Management defaulted and Hofmann failed to fulfill his guarantee, the Lender secured a judgment against him. In 2013, Hofmann arranged for International Supply to repay the Lender $1.72 million. However, by 2015, International Supply had entered bankruptcy, prompting the appointment of a trustee to allocate its assets to creditors.

During the bankruptcy court trial, expert witnesses disagreed on whether International Supply was solvent in 2013. The Trustee’s expert contended it was insolvent under two of three solvency assessment methods, while the Lender’s expert argued it was solvent under all three. The bankruptcy judge determined International Supply was insolvent in August 2013 and ordered the Lender to pay $1.72 million plus interest to the Trustee. The district court upheld this ruling.

On appeal. the Lender contended that the sole legally acceptable method to determine solvency is the balance-sheet test. However, the court disagreed, citing Illinois legislation that doesn’t support this stance. Additionally, the court noted the Lender hadn’t previously advocated for the balance-sheet test as the exclusive approach, constituting forfeiture. Thus, the court affirmed the bankruptcy judge’s use of multiple solvency determination methods. Consequently, the district court’s decision stood, requiring the Lender to pay $1.72 million plus interest to the Trustee.

Affirmed.

Decided 06/03/24

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