Legal Memorandum: Knowledge of Insolvency in MN

Issue: Does the fact that knowledge of insolvency at the time of transfer supports liability in some cases mean that the time of completed transfer is the relevant time period in all cases?

Area of Law: Bankruptcy & Creditors Rights, Litigation & Procedure
Keywords: Knowledge of insolvency; Reasonable cause to believe; Contemporaneousness requirement
Jurisdiction: Minnesota
Cited Cases: None
Cited Statutes: Fed. R. Evid. 402
Date: 04/01/2013

In Elliot & Callan, v. Crofton 615 F.Supp.2d 963, 971 (2009) the court found that the defendant had reasonable cause to believe that the transferee (SCC) was insolvent over the entire two-year period of time during which he served as SCC’s treasurer, and during which he also repaid only certain loans and reimbursed only certain advances.  The evidence at trial established that the defendant was intimately involved with all of the financial workings of the company during that entire time period; in fact, the defendant himself prepared the company’s balance sheets, which clearly showed that SCC was insolvent during the relevant two years.  Id.

The fact that the challenged transfers and knowledge of insolvency coincided in Elliot & Callan to support a finding of liability in that case does not establish a requirement of contemporaneousness in every case.  Stated another way, Elliott & Callan establishes only that the concurrence of the transfer and the reasonable-cause-to-believe time periods may support the defendant’s liability in factually appropriate cases.   

There is simply no requirement, however, that the defendant’s reasonable cause to believe the debtor was insolvent be viewed at the time of a completed transfer when the transfer was actually set in motion months—if not years—earlier.

See Fed. R. Evid. 402 (stating that all relevant evidence is admissible).    


Subscribe to Litigation Pathfinder

To get the full-text of this Legal Memorandum ... and more!

(Month-to-month and annual subscriptions available)