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and Liquidation Act, allowed the receiver to avoid certain transfers between
the filing of a petition for rehabilitation or liquidation and the entry of an
order thereon, unless the payee (a) acted in good faith and (b) made the
transfer(s) for present fair equivalent value. The statute further stated that
“[a] person having knowledge of the pending delinquency proceeding shall
be deemed not to act in good faith.” Fla. Stat. § 631.263(3). The appellate
court held that the presumption of bad faith was rebuttable.
Illinois Bouton v. Dement, 22 Ill. App. 619, (Ill. App. 1887) reversed, 123 Ill. 142, 13 N.E. 62.
Just prior to insolvency, a director shareholder owing $10,000 to the company
for a stock subscription entered into a collusive arrangement with the other
directors and officers of the company resulting in a fraudulent assignment of his
financial obligations to the company. Finding that the director shareholder
must pay the note for the benefit of all creditors of the company.
In the Matter of the Liquidation of Medcare HMO, Inc., 294 Ill. App. 3d 42,
689 N.E.2d 374 (Ill. App. Ct. 1997). Liquidator of insolvent HMO filed suit to
recover attorney's fees paid to a law firm asserting that the payment was a
fraudulent conveyance, or, in the alternative, a voidable preference. While
the payment was made pursuant to the order of the bankruptcy court and
for legal services actually rendered, the bankruptcy court was later found to
lack subject matter jurisdiction. In affirming the dismissal of plaintiff's
fraudulent conveyance count, the court stated that there was no evidence
that the bankruptcy court knew it lacked jurisdiction and colluded with the
law firm. Then, in affirming the dismissal of the plaintiff's fraud in fact claim,
the court noted that the mere preference of one or more creditors over
others does not constitute a fraudulent transfer under Illinois law. Finally,
while noting that Section 204 of the Insurance Code does allow for the
voiding of all preferential payments made within four months prior to the
filing of a complaint for the conservation of the insolvent company's estate,
the court concluded that all payments to the law firm fell outside of this
period.
Kentucky
National Distillers & Chem. Corp. v. Stephens, 912 S.W.2d 30 (Ky. 1995). The
Liquidator alleged that the insurance company had no assets from which to
lawfully declare dividends, yet still paid its parent company over $12 million in
dividends. The Liquidator claimed these dividends were proper assets of the
insurance company and were recoverable and applicable to outstanding
indebtedness. The court held that as long as certain basic accounting principles
and statutory requirements are followed, retroactive evaluations are immaterial
in ascertaining the legitimacy of foregone dividend payments.
Missouri Alexander v. Relfe, 74 Mo. 495 (1881). The Life Association of America
purchased 9,763 shares of the 10,000 shares outstanding of St. Louis Life
Insurance Company, with the St. Louis business then reinsured with the Life
Association. The new directors elected by the Life Association voted for the
redemption of 90% of the outstanding shares which in essence alleviated the
Life Association from liability on its notes for 9,000 of its 9,763 shares. The
reinsurance contract was then rescinded two months later resulting in the
ultimate insolvency of St. Louis. The court held that these transactions, if not
actually fraud (as some evidence indicated) was at least fraudulent at law as
respects the creditors of St. Louis and its receiver which was appointed when St.
Louis was adjudged a year after the transactions.
Alexander v. Williams, 14 Mo. App. 13 (1888). In an action by the receiver of a
dissolved insurance company against the Missouri insurance commissioner, the
court upheld the validity of certain transactions between the insurer and
another now insolvent company that had assumed the assets and liabilities of
the dissolved insurer. The court held that the transaction was not void merely