## Facts

- V.N. Deprizio Construction Co. operated as a construction contractor and obtained substantial contract work in 1980, later experiencing severe financial distress by 1982.
- The debtor borrowed from multiple non-insider lenders, including Ingersoll Rand Financial Corp., CIT Group/Equipment Financing, Inc., and Melrose Park Bank & Trust.
- Certain corporate debts to these lenders were guaranteed by insiders, including the debtor’s president and his brothers.
- Within the year before the debtor filed its Chapter 11 petition in April 1983, the debtor made payments to the outside lenders on the insider-guaranteed obligations.
- The bankruptcy trustee sued to avoid and recover these payments as preferential transfers, asserting the payments reduced insiders’ contingent guaranty liability and were therefore made “for the benefit of” insider creditors.
- The bankruptcy court limited recovery against the non-insider lenders to the ordinary 90-day preference period; the district court reversed and applied the one-year insider lookback; the lenders appealed.

## Issues

1. Whether payments to non-insider, arms-length lenders on insider-guaranteed debts are avoidable as preferences when made between 90 days and one year prepetition because they were made “for the benefit of” insider guarantors under 11 U.S.C. § 547(b)(1) and within the insider lookback of § 547(b)(4)(B).
2. If avoidable, whether the trustee may recover the transfers from the non-insider lenders as initial transferees under 11 U.S.C. § 550(a), even though the one-year lookback is triggered by insider status.

## Decision

- The Seventh Circuit largely affirmed the district court.
- Payments to non-insider lenders on debts guaranteed by insiders may be avoided if made between 90 days and one year before bankruptcy when the payments benefited insider guarantors by reducing their contingent liability.
- Once avoidable, the trustee may recover from the non-insider lenders as initial transferees under § 550(a), not solely from the insiders who benefited.
- The court carved out limits: payments satisfying tax obligations are not treated as transfers “for the benefit of” insider creditors for preference purposes; ordinary pension payments likewise generally are not, absent a direct insider-creditor obligation.

## Legal Principles

- A transfer may be preferential if made “to or for the benefit of a creditor,” and an insider guarantor can be a “creditor” because payment on the guaranteed debt reduces the guarantor’s contingent reimbursement or subrogation exposure.
- The one-year lookback in § 547(b)(4)(B) applies when the transfer is for the benefit of an insider creditor, even if the initial transferee is a non-insider.
- Under § 550(a), once a transfer is avoidable, recovery may be had from the initial transferee and/or the entity for whose benefit the transfer was made; the remedy is not restricted to insiders.
- Corporate tax payments cannot be recharacterized as insider-benefiting preference transfers; ordinary pension contributions generally are not insider-benefiting transfers without specific evidence of a direct insider obligation.

## Conclusion

The court held that payments to non-insider lenders within one year before bankruptcy may be avoided and recovered when they reduced insider guarantors’ liability, applying the insider preference period to insider-benefit transfers while excluding tax payments and ordinarily excluding pension payments absent a direct insider-creditor benefit.


Levit v. Ingersoll Rand Fin. Corp., 874 F.2d 1186 (7th Cir. 1989)