Bankruptcy: Preference Trust Funds – Lowest Intermediate Balance Test bit.ly/1fGMUSB By: Neil J. Orleans In In re Erickson Retirement Communities, LLC, 2013 WL 4425582 (N.D. Tex. Bankr., Aug. 16, 2013), the Court held that the lowest intermediate balance test would apply when trust funds are commingled with other funds in a general operating account. Similar to Texas law, Massachusetts law, which was applied to the instant case, provides that the funds received by the Debtor were impressed with a trust in favor of the subcontractor. The contract between the owner and the Debtor provided that the owner would pay the debtor funds for work performed by the subcontractors which funds were to be held by the debtor for the benefit of the subcontractors. The Court stated that the commingling of funds or lack of segregation did not defeat the trust, but that tracing would still be necessary. The lowest intermediate balance test provides “[that] if the amount on deposit in commingled funds….. has at all times equaled or exceeded the amount of the trust, the trust’s funds will be returned in their full amount” and, therefore, there is no preference. Id. at *5. If the amount on deposit is less than the amount received by the transferee, then the transferee is liable for the difference between the amount received and the lowest intermediate balance. “[T]he lowest intermediate balance tests creates a legal fiction that, when funds are withdrawn from a trust account, non-trust funds are withdrawn first.” Id. at *5. bit.ly/eA8V8J
Posted on: Tue, 01 Oct 2013 21:17:46 +0000
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