Trustee Seeks to Clawback $6.2M of Preferred Dividends Payments Made By Subsidiary
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July 21, 2022, US Bankruptcy Court for Southern Ohio – GlassRatner Advisory & Capital Group, LLC, solely in its capacity as the trustee (the “Trustee”) of the Hopedale Creditors’ Trust brings an adversary proceeding against Weston Energy, LLC (the “Defendant”) to avoid and recover alleged fraudulent transfers under sections 544, 548, and 550 of title 11 of the Bankruptcy Code. The Trustee is acting on behalf of Debtor Hopedale Mining LLC and each of its affiliated Debtors and Debtors-in-possession, Rhino GP LLC, Rhino Resource Partners LP, Rhino Energy LLC, et al.
Defendant Weston was a Series A Preferred Unit equity holder in Rhino Resource Partners LP (“Rhino Resource”) under a Limited Partnership Agreement. The adversary proceeding revolves around two alleged equity distributions (“Weston Dividends”) made by Rhino Energy LLC (“Rhino Energy”), on behalf of Rhino Resource, to Defendant Weston at times when both, Rhino Resource and Rhino Energy, were allegedly insolvent and “unable to pay their debts” as they came due.
The Debtors have been experiencing a decline in their revenue since 2017 and consequently, Rhino Resource had accrued over $6 million in unpaid Series A Preferred Unit distributions. The complaint alleges that the Debtors began using various tactics to incur debt and sell off assets to create liquidity to fund the Weston Dividends. Meanwhile, Debtors were allegedly in repeated defaults under their loan agreements and their businesses were losing money. The Debtors allegedly paid “exorbitant” fees to their lenders in exchange for the lenders’ acquiescence to the asset sales and allowance of the payments of the Weston Dividends.
The Trustee alleges that the Debtor allegedly diverted much-needed cash from the Debtors’ operations to pay Weston Dividends. In 2018 and 2019, Rhino Resource, through its subsidiary Rhino Energy, allegedly made preferred distributions to Weston in the amount of $6,038,628.85 and $3,209,536.31 in the respective years. The Trustee claims that Rhino Energy did not receive reasonably equivalent value in exchange for these distributions.
The Trustee seeks to avoid and recover the payment of Weston Dividends as alleged fraudulent transfers under sections 544(b) and 550 of the Bankruptcy Code and sections 1304(a)(1) and 1304(a)(2) of the Delaware Uniform Fraudulent Transfers Act (the “Delaware UFTA”).
Liquidating Trustee of the Hopedale Creditors Trust v. Weston Energy, LLC (In re Hopedale Mining, LLC), AP No. 22-1072, US Bankruptcy Court for Southern Ohio