Delaware Bankruptcy Court Allows Ashinc Corp. Trustee to Recover Value of “Fraudulent Transfers,” Rules on Multiple Other Issues
May 4, 2021, District of Delaware – The case refers to a dispute resulting from two complaints that were asserted against Defendants Yucaipa American Alliance Fund I and Yucaipa American Alliance (Parallel) Fund I (collectively, “Yucaipa”) and certain individuals in In re Ashinc Corporation and In re Allied Sys. Holdings bankruptcy cases. Trustee Catherine E. Youngman asserts a bevy of claims against Yucaipa related to a first lien credit agreement between the parties. The claims included – “breach of contract,” “breach of fiduciary duty,” equitable subordination, recharacterization, tortious interference, “fraudulent transfers,” and disallowance of claims. Both Trustee and Yucaipa moved for summary judgment on a variety of these claims and filed cross-motions for summary judgment.
Debtor, Allied was a unionized car hauling company engaged in the transport of new vehicles in North America. Yucaipa, a private equity firm began analyzing investment opportunities in Allied to provide experience with restructuring and distressed debt investing. To finance its exit from a prior bankruptcy, Allied entered into a two-tiered financing structure with various lenders comprising $265 million in first-lien debt, governed by a First Lien Credit Agreement (“FLCA”) and $50 million in second lien debt, governed by a Second Lien Credit Agreement (“SLCA”). The 2007 recession greatly impacted Allied, and Yucaipa intended to contribute a portion of the acquired debt to Allied’s equity. The parties subsequently added third and fourth amendments to the FLCA. The transfers made under the FLCA and its amendments were the subjects of these proceedings.
The Trustee sought summary judgment on Yucaipa’s failure to make the capital contribution required under the third amendment. According to the Trustee, Yucaipa failed to make a capital contribution to Allied and sought damages for “breach of contract.” The Court sided with the Trustee, holding that the Trustee was able to prove all elements of “breach of contract.” In its motion, Yucaipa asserts that the “breach of contract” and “breach of duty” of good faith and fair dealing claims are barred by Delaware’s three-year statute of limitations. However, the Court disagreed and ruled that FLCA and third amendments were continuous contracts.
As to the “fraudulent transfer” claims, the Court found that the contested payments were made during Allied’s insolvency and within the statute of limitation. The Court also held that the Trustee has successfully proved that Allied received no reasonably equivalent value since no payments were made in exchange for any direct or indirect value. Accordingly, the Court granted the Trustee’s motion and denied Yucaipa’s claims.
Besides, the Court also granted the Trustee’s equitable subordination claim because the Trustee successfully proved that Yucaipa was an “insider,” its actions injured Allied and its lenders and that Yucaipa acted in bad faith. The Court did not rule on the “breach of fiduciary duty” claim but found that there is enough evidence to go to trial on the issue that Yucaipa’s actions negatively impacted Allied and its stakeholders.
Next, Yucaipa was granted its claim for specific performance because the Trustee abandoned this claim in her motion. Moreover, the Court found that it would be impossible for Yucaipa to perform per the capital contribution provisions because there was no corporation to which Yucaipa can contribute capital.
Accordingly, both parties’ cross-motions for summary judgment were granted in part and denied in part.
Youngman v. Yucaipa Am. All. Fund I, L.P. (In re ASHINC Corp.), Nos. 12-11564, 13-50530 (CSS), 705, 14-50971 (CSS), 2021 Bankr. LEXIS 1178 (Bankr. D. Del. May 4, 2021)