Bankr. L. Rep. P 67,332 in Re Hamman-Mcfarland Lumber Company, an Arizona Corporation, Debtor. Wallace Perry, Trustee v. Larry Hamman Et Ux.

This appeal is from the trial court’s judgment denying recovery by the receiver in bankruptcy proceedings of deferred payments made by the debtor corporation to some of its shareholders under a stock redemption agreement. The receiver brought the claim under § 70(e) of the Bankruptcy Act, challenging the validity of the payments under applicable Arizona law. The trustee, substituted for the receiver, urges here that the bankruptcy court and the district court erred in upholding the validity of the payments under Arizona law.

The corporation, Hamman-McFarland Lumber Company, was a closely held Arizona corporation. In order to resolve an inter-family dispute the shareholder family members executed a stock redemption agreement in 1971 dividing the corporation. Under this agreement the departing share holders, appellees, sold their shares back to the corporation for an agreed price of $418,-506. Although at the time of the agreement the corporation apparently did not have sufficient earned surplus to cover the entire redemption price, it was solvent and had a net worth sufficient to enable full payment without rendering the corporation insolvent.

Soon after execution of the…