Have a client filing personal CH 7 who owns an s corp as his business. The s corp has 100k assets and 300k liabilities, however it does occasionally have cash flow from small contracts its is performing. A new trustee in my district says she can seize those contracts and get the cash flow as an asset of my client’s personal estate. I beg to differ with her, however I began thinking about exactly what rights the trustee have when it comes to “cherry picking” a non-filing entity that is upside down.
The only interest of the debtor that goes into his estate is the stock of the corporation. The Trustee can not collect receivables of the corporation. Since it sounds as though the stock is valuless (given the negative net worth of the corporation) the Trustee should not administer the stock and will likely be abandoned back to the debtor at the close of the case. The stock and company as a whole is negative in value. Trustee seems to feel that the “cash flow” from the contracts would accrue to the benefit of the debtor personally and therefore was fair game. Trustee says otherwise one could accumulate cash in the s corp and avoid ever releasing it to the debtor personally. The corporation is a separate entity and it is entitled to utilize those funds to pay off corporate debts. the Trustee is dead wrong. Is he suggesting that he can look to see what bills the corporation has paid and recover those as preferences
Related posts: