Generation Next Franchise Brands Trustee Seeks to Recover $2.7M as Alleged “Fraudulent Transfers” From Shareholder IQ, LLC & Others
May 7, 2021, District of Nevada – Trustee Brian D. Shapiro, acting on behalf of the bankruptcy estate of consolidated debtors Generation Next Franchise Brands, Inc. (“Generation Next”), Reis & Irvy’s Inc. (“Reis & Irvy’s”), Print Mates, Inc. (“Print Mates”) and 19 Degrees, Inc. (“19 Degrees”) (collectively, the “Debtors”) commences an adversary proceeding against Defendants Shareholder IQ, LLC, Grant Logan, Robert B. Wheat, RBW, Inc., Solar Tech Energy Systems, Inc., Ross Logan, Thomas Chubb, IR Services, Inc. and Ashley Lange (collectively referred to herein as “Defendants”) to avoid and recover certain “fraudulent transfers” allegedly made by the Debtors to the Defendants during the four years immediately preceding the petition date under Section 548, 544, 550 of the Bankruptcy Code.
The claims against Defendants relate to avoidance and recovery of approximately $2.7 million in alleged “fraudulent transfers”, allegedly made in 2017 and 2018 while the Debtors “were insolvent” and “unable to pay debts as they become due”, and constituted alleged “securities violations and unlawful distributions to shareholders”. The complaint also includes an alternate claim for “unjust enrichment.”
Pre-petition, the Debtors were involved in an industry of unattended retail solutions and vending kiosks and the franchising thereof. According to the complaint, the Debtors apparently entered into consulting agreements with Shareholder IQ, LLC (“Shareholder IQ”) and then allegedly transferred approximately $2.7 million to Shareholder IQ over an approximately one-and-a-half-year period between in or about March 2017 and October 2018. As alleged in the complaint, most of the transfer was made for “improper stock sales commissions” even though Shareholder IQ, its members, managers, officers, and employees “did not register as broker-dealers”. The complaint also alleges that Shareholder IQ filed articles of dissolution with the Nevada Secretary of State on June 13, 2018. Notwithstanding Shareholder IQ’s dissolution, the Debtors allegedly “continued making significant payments to Shareholder IQ” between June and October 2018. Adding further, the complaint asserts that Shareholder IQ allegedly “did not have an arms’-length relationship” with the Debtors or with Generation Next officer and director, Nicholas Yates (“Yates”), and instead was comprised of 5 Generation Next shareholders and/or lenders and persons with other businesses relationships with the Debtors and Yates.
In its complaint, the Trustee alleges that the alleged transfers were “made to or for the benefit of” the Defendants, “during the four years immediately preceding the Petition Date,” with the “actual intent to delay, hinder or defraud the Debtors’ creditors.” The Trustee further argues that the “actual intent” of the Debtors is outlined in the general allegations, including but not limited to the Debtors “making the transfers based on stock sales commissions” for sales of Generation Next stock to Defendants even though paying the stock sales commissions was “improper,” given that the commissions were “not lawfully paid,” and given that the commissions “should not have been paid” given that, among other things, Defendants were “not registered to act as broker-dealers” and such payments “constituted securities violations” subjecting the Debtors to potential liability.
Accordingly, the Trustee urges the Court to enter judgment in its favor and avoid the alleged transfers for the benefit of the estate or recover the value of transfers from the Defendants. The Trustee also argues that each of the transfers “conferred a monetary benefit upon the Defendants” and the Defendants appreciated the benefit of transfers. Allegedly, there was “no express written contract” between the Debtors and the Defendants related to the transfers and hence the Trustee alleges that it would be “inequitable” for the Defendants to retain the funds transferred without payment by Defendants to the Debtors of the value for same. Accordingly, the Trustee urges the court to enter a judgment in its favor on grounds of “unjust enrichment.”