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the total amount expected was received from Formosa whereas the
repayments of many of petitioner’s advances were postponed for 3
or more years, and some were never repaid. Postponement of this
magnitude overtly suggests that petitioner’s advances were
purposefully and systematically subordinated in favor of those of
other creditors, including Grocers, in an effort to keep
petitioner’s and Stewart’s investment in UPE viable.
Here, petitioner was wholly owned by Stewart, who eventually
used petitioner’s resources to acquire 100 percent of UPE. A
portion of the advances UPE received from petitioner was used to
buy out the other owners of UPE common stock, making Stewart the
sole shareholder of both petitioner and UPE. Upon gaining
control of UPE, Stewart made himself president and demoted
Goolsby to vice president.
Another factor weighing heavily against petitioner is the
fact that UPE was thinly capitalized ($1,000) and reported losses
at the time of all advances. To counter this factor, petitioner
argues that UPE’s inventory was worth more than $100 million at
the time of the advances. Both Stewart and Goolsby testified
that UPE’s inventory was probably worth millions of dollars, but
that value depended upon the ability to tap the international
market. They also pointed out that UPE did not reflect the
equipment’s fair market value on its books because of a lack of
basis. In light of the record, we find their testimony to be
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Last modified: May 25, 2011