SafeBuy Trustee Sues “Insider Defendants” for Alleged “Fraudulent Transfers” and “Breach of Fiduciary Duty”
March 14, 2021, Northern District of Texas – SafeBuy LLC Trustee accuses “insider defendants” of alleged “actual fraud”, “breach of fiduciary duty” and, seeks to recover and avoid certain transfers as alleged “fraudulent conveyances” under Sec. 544, Sec. 548 and Sec. 550 of the Bankruptcy Code.
Debtor Safe Buy, LLC was in the business of selling used cars and operated in four locations. The Debtor’s business also included two dealer finance companies, SafeBuy Acceptance Corp. (“SBAC”) and SafeBuy Financial Services, Inc. (“SBFS”) ( collectively the “SafeBuy Companies”). As alleged in the complaint, Debtor controlled and directed SBAC and SBFS, because all the business operations depended upon the Debtor as a dealer licensed by the State of Texas to sell vehicles. Debtor allegedly raised capital for its operations by obtaining loans from individual creditors (the “Lenders”).
The complaint asserts that one of the defendants, Pithou Nuth reportedly invested about $3,419,665.00 (the “Pithou Equity Investment”) in the Debtor. However, the parties allegedly did not execute any documents, promissory notes, or security agreements. The Trustee argues that neither debtor’s accounting records contained accrual of interest about Pithou Equity Investment nor did the debtor reportedly “pay any interest” on the investment. Further, according to the complaint, there was no indication of whether the alleged investment is a loan or debt of the debtor. The Trustee contends that Pithou exercised control over the operations of the Debtor and SafeBuy Companies. Eventually, the Debtor made transfers worth $3,950,000 to Pithou and one of the other defendants, Sinna Nuth. (the “Pithou Transfers”).
Pithou asserts that the Pithou Equity Investment should be considered as a loan rather than an equity investment. According to the complaint, considering the effect of threats on the economic viability of SafeBuy companies, the Debtor’s owners agreed to resolve the disagreement by treating the funds advanced as a debt. The Debtor supposedly executed a promissory note in favor of another defendant company, PNV and, also executed a settlement agreement. Allegedly, the purpose of the note was to “saddle the Debtor /////////////with a $3.5M obligation and, the transfers were made in furtherance of repayment of Pithou as an equity investor at a time when the Debtor was insolvent. ( “PNV Transfers”)
The Trustee alleges that the Pithou Transfers were made at the direction of Pithou without any disclosure to the owner of SafeBuy Companies and their approval. The Trustee further contends that Pithou engineered a carefully constructed “money shuffle scheme using obtained money from SafeBuy LLC and its Lender”s and “funneled the money” through cashier’s check and the bank account of SafeBuy LLC and SBFS. Thus, according to the Trustee, the Pithou Transfers are “fraudulent “as to the creditors of the Debtor because they were made with an “actual intent to hinder, delay or defraud the creditors of the Debtor. The Debtor allegedly “did not receive any reasonably equivalent value in exchange for the transfer.
The Trustee also alleges that at the time of receipt of transfers, Pithou was an “insider” and also a fiduciary of SafeBuy Companies due to his actions of making an investment for a controlling interest in the SafeBuy Companies and exercising such control. Thus, according to the Trustee, Pithou “breached his fiduciary duty” and as a result, the Debtor was entitled to recover damages for such breach. The Trustee also argues that PNV was organized for the sole purpose of carrying out transactions intended to “defraud Debtor’s creditors” and was used for that purpose. Allegedly, there is unity between Pithou and PNV and hence the corporate veil of PNV be pierced so that Pithou can be held liable for PNV Transfers under §544(b)(1) and Tex. Bus. & Com. Code §24.005(A)(1) & (2).