## Facts

- Intershoe, Inc. (later R.M.L., Inc.) sought replacement financing after learning its existing secured lender would terminate financing.
- A prospective equity investor made a nonbinding proposal to invest $15 million, which was a key condition for a contemplated $53 million credit facility.
- A bank issued proposals culminating in a formal commitment letter for the $53 million facility, subject to numerous conditions precedent, including the equity infusion and a minimum net worth requirement.
- The debtor paid three amounts to the bank in 1991 totaling $515,000: two $125,000 “good-faith deposits” and a $265,000 commitment fee.
- The equity investor withdrew, the financing never closed, and corrected financial statements showed the debtor had a negative net worth that worsened by mid-November 1991.
- The debtor filed Chapter 11 in February 1992.
- The unsecured creditors’ committee brought an avoidance action alleging the three payments were constructively fraudulent transfers under 11 U.S.C. § 548(a)(2) (pre-1994 version).

## Issues

1. Whether the debtor received “reasonably equivalent value” for $515,000 in fees paid for a loan commitment that was highly conditional and never funded.
2. Whether the debtor was insolvent at the time of the transfers under the balance-sheet test required by § 548(a)(2)(B)(i).

## Decision

- The Third Circuit affirmed the judgment for the creditors’ committee.
- The court held the debtor did not receive reasonably equivalent value for the fees, except to the extent of the bank’s documented out-of-pocket costs (about $127,538.04).
- The court upheld the finding that the debtor was insolvent when it made the payments.
- The bank was required to return the remainder of the $515,000 to the estate.

## Legal Principles

- A transfer is avoidable as constructively fraudulent under the pre-1994 version of 11 U.S.C. § 548(a)(2) if the debtor received less than reasonably equivalent value and was insolvent at the time of the transfer (or rendered insolvent by it).
- “Reasonably equivalent value” is determined under a totality-of-the-circumstances approach and may include direct or indirect economic benefits, but the benefit must be economically real rather than speculative.
- When claimed value depends on a contingent transaction, courts may consider the realistic probability that conditions precedent will be satisfied; a commitment “so conditional” that closing is unlikely may provide little or no value.
- Insolvency is assessed under the balance-sheet test: whether debts exceed assets at a fair valuation; corrected financial statements and credible adjustments may support insolvency findings despite earlier optimistic drafts.
- Even if an overall transaction fails, an estate may receive value to the extent of actual services or expenses proven by the transferee, limiting recovery to amounts exceeding that value.

## Conclusion

The court held that substantial fees paid for a highly conditional financing commitment that had little chance of closing did not constitute reasonably equivalent value, and because the debtor was insolvent when it made the payments, the transfers were avoidable as constructively fraudulent except for the lender’s proven out-of-pocket costs.


Mellon Bank, N.A. v. Official Comm. of Unsecured Creditors (In re R.M.L., Inc.), 92 F.3d 139 (3d Cir. 1996)