A corporation with “unreasonably small capital” cannot be viewed as insolvent, the U.S. District Court for the District of Delaware ruled Tuesday in what is believed to be a case of first impression. The federal court’s ruling affirmed a U.S. Bankruptcy Court decision dismissing a bankruptcy trustee’s claims that SemCrude Inc. was insolvent in 2007 because it had little capital on hand.
U.S. District Judge Sue L. Robinson of the District of Delaware said in In re SemCrude that “unreasonably small capital” does not automatically equal insolvency because corporations have options to maintain their business, such as available lines of credit. She said Moody v. Security Pacific Business Credit, a 1992 U.S. Court of Appeals for the Third Circuit decision, defined unreasonably small capital as “a financial condition short of equitable insolvency,” but she also noted Moody addressed facts different from SemCrude.
