## Facts

- Iridium and related debtors developed a global satellite telecommunications system consisting of sixty-six low-earth-orbit satellites and related gateway infrastructure.
- Motorola, Iridium’s former parent and primary contractor, developed and deployed the system under the Space System Contract and related agreements.
- Under the contracts’ milestone payment schedule, Motorola received approximately $3.7 billion in transfers from Iridium.
- Iridium launched service in November 1998 and filed for bankruptcy roughly nine months later.
- The official committee of unsecured creditors sued Motorola, asserting fraudulent transfer and preference claims seeking avoidance and recovery of the $3.7 billion in transfers.
- The parties bifurcated the trial, with Phase I limited to whether Iridium was insolvent or had unreasonably small capital during the relevant four-year period.
- The relevant period for Phase I was August 13, 1995 through August 13, 1999.
- After an extensive bench trial (50 trial days, 52 witnesses including 7 experts, and 866 exhibits), the court issued findings on solvency and capital adequacy to determine whether the avoidance claims could proceed on the Committee’s theory.

## Issues

1. Whether Iridium was insolvent at any time during August 13, 1995 through August 13, 1999 under the applicable bankruptcy and fraudulent transfer standards.
2. Whether Iridium operated with unreasonably small capital during that same period, such that the transfers to Motorola could be avoidable.
3. Whether the Committee carried its burden of proving insolvency or unreasonably small capital in a manner supporting broad avoidance of the challenged transfers.

## Decision

- The court held that the Committee did not carry its burden to prove that Iridium was insolvent or had unreasonably small capital throughout the relevant four-year period as required to support the Committee’s broad avoidance theory against Motorola.
- The court treated Phase I as a valuation-driven predicate determination and declined to infer insolvency or undercapitalization from Iridium’s later collapse.
- The court resolved the Phase I questions by weighing conflicting expert valuation models and contemporaneous market evidence rather than relying on retrospective conclusions drawn from the bankruptcy filing.

## Legal Principles

- Insolvency in fraudulent transfer litigation is commonly assessed using a balance-sheet test comparing the fair value of assets to the debtor’s probable liabilities.
- “Unreasonably small capital” focuses on whether, at the time of the challenged transfer, the debtor was left with capital inadequate for its business in light of reasonably anticipated cash needs and business risks.
- The plaintiff bears the burden of proving insolvency and unreasonably small capital; if the evidence does not persuasively establish the plaintiff’s valuation theory, the defendant prevails on those predicate issues.
- A subsequent business failure does not, by itself, establish that the business was insolvent or inadequately capitalized at the time of earlier transactions; valuation must be tied to conditions and expectations existing at the relevant times.

## Conclusion

The court’s Phase I findings rejected the Committee’s attempt to treat Iridium’s later failure as proof that it was insolvent or undercapitalized across the entire look-back period, concluding instead that the Committee did not prove insolvency or unreasonably small capital in a way that would support sweeping avoidance of the $3.7 billion in transfers to Motorola.


In re Iridium Operating LLC, 373 B.R. 283 (Bankr. S.D.N.Y. 2007)