                             In the

United States Court of Appeals
               For the Seventh Circuit

Nos. 09-1699, 09-1861

R. D AVID B OYER,
                                                  Plaintiff-Appellee/
                                                   Cross-Appellant,
                                 v.



C ROWN S TOCK D ISTRIBUTION, INC., et al.,

                                           Defendants-Appellants/
                                                 Cross-Appellees.


             Appeals from the United States District Court
      for the Northern District of Indiana, Fort Wayne Division.
          No. 1:06-CV-409—Robert L. Miller, Jr., Chief Judge.



   A RGUED O CTOBER 9, 2009—D ECIDED N OVEMBER 18, 2009




  Before P OSNER, R OVNER, and W ILLIAMS, Circuit Judges.
  P OSNER, Circuit Judge. These appeals arise from the
Chapter 7 bankruptcy of Crown Unlimited Machine, Inc.
The trustee in bankruptcy filed an adversary action
charging the defendants—a defunct corporation and its
shareholders, members of a family named Stroup—with
2                                     Nos. 09-1699, 09-1861

having made a fraudulent conveyance in violation of
Ind. Code § 32-18-2-14(2) (section 4(a)(2) of the Uni-
form Fraudulent Transfer Act), a statute enforceable in a
bankruptcy proceeding. See 11 U.S.C. § 544(b). After an
evidentiary hearing, the bankruptcy judge awarded
the trustee $3,295,000 plus prejudgment interest. The
district judge affirmed and the defendants have ap-
pealed. The trustee has cross-appealed, seeking an addi-
tional $590,328.
  Crown was a designer and manufacturer of machinery
for cutting and bending tubes. Most of the machinery it
made was custom-designed to the buyer’s specifications,
and only two other companies manufactured custom-
designed machinery of that type. In January 1999 the
defendants agreed to sell all of Crown’s assets to Kevin
E. Smith, the president of a company in a similar line
of business. The price was $6 million. Crown agreed to
employ Smith until the closing, so that he could assure
himself of the value of the business before committing
to buying it. He decided to go through with the deal. At
the closing, on January 5, 2000, Crown received from a
new corporation, formed by Smith, $3.1 million in cash
and a $2.9 million promissory note. The new corporation
(also named Crown Unlimited Machine, Inc., the name
being among the assets sold to the new Crown) had
borrowed the $3.1 million from a bank. Although the
loan was secured by all of Crown’s assets, the annual
interest rate (a floating rate) initially exceeded 9 percent.
The rate suggests—since inflation expectations were low
at the time—that the bank considered the risk of default
nontrivial.
Nos. 09-1699, 09-1861                                    3

  The promissory note was payable on April 1, 2006, with
interest at an annual rate of 8 percent. Although that
translates into an interest expense of $232,000 a year,
the agreement of sale specified that the new corporation
would be required to pay only $100,000 a year on the
note, with the first payment due in April 2001, unless
new Crown’s sales exceeded a specified high threshold.
The note, like the bank loan, was secured by all of
Crown’s assets, but the promisee’s (old Crown’s) security
interest was subordinated to the bank’s. Although the
interest rate on the note was lower than the interest rate
on the bank loan, even though the note was not as well
secured, there was, as we’ll see, little chance that the
note would ever be paid; and after the first two
$100,000 interest payments, it wasn’t.
  Smith’s personal assets were meager. He contributed
only $500 of his own money toward the purchase.
  Just prior to the closing, old Crown transferred $590,328
from its corporate bank account to a separate bank
account so that it could be distributed to Crown’s share-
holders as a dividend. This was done pursuant to an
understanding of the parties that, depending on the
company’s performance between the initial agreement
and the closing, the Stroups would be permitted to keep
some of Crown’s cash that would otherwise have been
transferred to the new corporation as part of the sale;
the sale, since it was of all of Crown’s assets, included
whatever money was in the corporation’s bank account.
 After the closing, old Crown (renamed Crown Stock
Distribution, Inc.) distributed the entire $3.1 million in
4                                     Nos. 09-1699, 09-1861

cash that it had received to its shareholders, and ceased
to be an operating company.
  New Crown was a flop. It declared bankruptcy in July
2003, and its assets were sold pursuant to 11 U.S.C. § 363
(which authorizes a sale, if approved by the bankruptcy
judge, of assets of the debtor) for $3.7 million. The
buyer was a new company of which Smith is now the
president. Most of the money realized in the sale was
required for paying off the bank; very little was left over
to pay the claims of new Crown’s unsecured creditors,
who were owed some $1.6 or $1.7 million and on whose
behalf the trustee in bankruptcy brought the adversary
action. The action was timely, despite the length of
time since the alleged fraudulent conveyance, because
the bankruptcy petition was filed within the four-year
“look back” period of the Uniform Fraudulent Transfer
Act, Ind. Code § 32-18-2-19(2), and the trustee initiated
this suit within the period specified in 11 U.S.C. § 546
for bringing a section 544 avoidance action and the one-
year deadline for bringing a section 550 action to
recover improperly transferred funds, a deadline that
runs from the date on which the transfer was set aside.
11 U.S.C. § 550(f)(1).
  The bankruptcy judge ruled that the $6 million that
new Crown had paid (the $3.1 million in cash), or
obligated itself to pay (the $2.9 million promissory note),
for old Crown’s assets had been paid “without [new
Crown’s] receiving a reasonably equivalent value in
exchange.” As a result, New Crown had embarked upon
“a business . . . for which [its] remaining assets . . . were
‘unreasonably small in relation to the business,’ ” in the
Nos. 09-1699, 09-1861                                    5

language of the Uniform Fraudulent Transfer Act.
The judge did not think the assets, including intangible
assets such as goodwill that made old Crown a
going concern and not just a pile of machinery, had
been worth more than $4 million tops on the date of the
closing. And he thought that new Crown had been so
depleted by the debt it had taken on that it had been, in
his words, on “life support” from the get-go. So old
Crown and its shareholders could neither enforce the
promissory note nor keep either the $3.1 million in
cash received at the closing or the two $100,000
interest payments made on the note.
  But the $590,328 dividend, the judge ruled, was legiti-
mate, because it had been paid out of cash that belonged
to old Crown rather than to the debtor (new Crown). In
so ruling he rejected the trustee’s argument that the
purchase of old Crown’s assets had been an LBO (a
leveraged buyout), that it should be “collapsed” and
the sale thus recharacterized as a sale by the share-
holders of old Crown, and that once it was collapsed in
this fashion the $590,328 “dividend” would be seen as
an asset of the debtor’s estate and thus would be avail-
able to help satisfy the claims of the unsecured creditors.
If the transaction was not collapsed—and the bank-
ruptcy judge thought it should not be because he
refused to recharacterize the sale of assets as an LBO—the
debtor was not entitled to the return of the dividend
because, when it was paid, the money out of which it
was paid belonged to old Crown.
  We begin our analysis with the trustee’s argument for
recharacterizing the transaction. In a conventional
6                                     Nos. 09-1699, 09-1861

LBO, an investor (often consisting of the corporation’s
managers) buys the stock of a corporation from the stock-
holders with the proceeds of a loan secured by the corpora-
tion’s own assets. In re Image Worldwide, Ltd., 139
F.3d 574, 580 (7th Cir. 1998); In re EDC, Inc., 930 F.2d
1275, 1278 (7th Cir. 1991); Mellon Bank, N.A. v. Metro
Communications, Inc., 945 F.2d 635, 645-46 (3d Cir. 1991). It
follows that if all the assets are still fully secured when
the corporation declares bankruptcy, the unsecured
creditors cannot satisfy any part of their claims from a
sale of the assets. If the trustee loses this suit, the unse-
cured creditors will have recovered only $150,000—less
than 10 cents on the dollar.
  Should the acquired company be doomed to go broke
after and because of the LBO—if the burden of debt
created by the transaction was so heavy that the corpora-
tion had no reasonable prospect of surviving—the pay-
ment to the shareholders by the buyer of the corporation
is deemed a fraudulent conveyance because in ex-
change for the money the shareholders received they
provided no value to the corporation but merely
increased its debt and by doing so pushed it over the
brink. HBE Leasing Corp. v. Frank, 48 F.3d 623, 635-37
(2d Cir. 1995); Moody v. Security Pacific Business Credit,
971 F.2d 1056, 1063-64 (3d Cir. 1992); Mellon Bank, N.A. v.
Metro Communications, Inc., supra, 945 F.2d at 645-46;
United States v. Tabor Court Realty Corp., 803 F.2d 1288,
1297 (3d Cir. 1986). A corporate transfer is “fraudulent”
within the meaning of the Uniform Fraudulent Transfer
Act, even if there is no fraudulent intent, if the corpora-
tion didn’t receive “reasonably equivalent value” in
Nos. 09-1699, 09-1861                                      7

return for the transfer and as a result was left with insuf-
ficient assets to have a reasonable chance of surviving
indefinitely. Ind. Code § 32-18-2-14(2); Rose v. Mercantile
National Bank, 844 N.E.2d 1035, 1053-54 (Ind. App.
2006), vacated in part on other grounds, 868 N.E.2d 772
(Ind. 2007); see also Donnell v. Kowell, 533 F.3d 762, 770-71
(9th Cir. 2008).
  Some courts have been reluctant to apply the Act as
written to leveraged buyouts. See Kupetz v. Wolf, 845 F.2d
842, 847-50 (9th Cir. 1998); United States v. Tabor Court
Realty Corp., supra, 803 F.2d at 1297; Wieboldt Stores, Inc.
v. Schottenstein, 94 B.R. 488, 503 (N.D. Ill. 1988). They
sympathize with minority shareholders who have no
power to prevent such a deal. They may also agree
with the scholars who have argued that many LBOs are
welfare-enhancing transactions because by making the
managers owners (managers are often the buyers in an
LBO) and thus fusing ownership with control, an LBO
increases the managers’ incentive to operate the corpora-
tion with a view to maximizing its value rather than
their salaries and perks. These scholars also argue that
devices that facilitate transfers of corporate control
increase the mobility of capital. See Bengt Holmstrom &
Steven N. Kaplan, “Corporate Governance and Merger
Activity in the United States: Making Sense of the 1980s
and 1990s,” Journal of Economic Perspectives, Spring 2001,
pp. 121, 128; Steven N. Kaplan & Jeremy C. Stein, “The
Evolution of Buyout Pricing and Financial Structure in
the 1980s,” 108 Quarterly Journal of Economics 313, 340-44
(1993); Douglas G. Baird, “Fraudulent Conveyances,
Agency Costs, and Leveraged Buyouts,” 20 Journal of
8                                   Nos. 09-1699, 09-1861

Legal Studies 1, 8-9 (1991); Frank H. Easterbrook, “High-
Yield Debt as an Incentive Device,” 11 International
Review of Law & Economics 183 (1991); Douglas G. Baird
& Thomas H. Jackson, “Fraudulent Conveyance Law and
Its Proper Domain,” 38 Vand. L. Rev. 829, 830-35, 850-
54 (1985).
  The reluctance of the courts in the decisions we cited
is not easy to square with the language of the Uniform
Fraudulent Transfer Act. And anyway the “equities,” as
we shall see, do not favor lenient treatment in this case.
Moreover, although before the LBO Smith was briefly a
member of Crown’s management, the LBO did not close
a gap between managers and shareholders. LBOs, though
by burdening the acquired corporation with additional
debt they increase the risk of bankruptcy (because debt
is a fixed cost, and therefore unlike a variable cost
does not shrink when the debtor’s output shrinks),
can indeed have redeeming economic value when the
corporation is publicly held and the managers have a
low equity stake prior to the transaction. In a publicly
held corporation there is a separation of ownership from
control, and the managers may use their control to
manage the company in a way that will increase their
personal wealth rather than maximize the profits of the
corporation. The conflict of interest is eliminated by
making the managers the owners. But this rationale for
an LBO is missing from this case because both old and
new Crown were closely held corporations. And while the
economic literature also argues that the increased risk of
bankruptcy that an LBO creates concentrates the minds of
Nos. 09-1699, 09-1861                                     9

the managers (just as, according to Samuel Johnson, the
prospect of being hanged concentrates the mind of the
condemned person), this is hard to take seriously in the
present case; for the owner-manager had only a $500
stake in the company.
   But the critical difference between the LBO in this case
and a bona fide LBO is that this LBO was highly likely to
plunge the company into bankruptcy. There was scant
probability that the transaction would increase the
firm’s value; on the contrary, it left the firm with so few
assets that it would have had to be extremely lucky to
survive.
  The transaction differed, however, in two formal
respects from a conventional LBO: the buyer bought
the assets of the corporation, rather than stock in the
corporation; and despite a load of debt and a dearth of
cash, the corporation limped along for three-and-a-half
years before collapsing into the arms of the bankruptcy
court. The defendants urge these as grounds for not
reclassifying the asset purchase as an LBO.
  Now whether one calls it an LBO or not is not critical,
although both the bankruptcy court and the defendants
thought it was. Some LBOs are legitimate; others are
fraudulent conveyances. “[F]raudulent conveyance doc-
trine . . . is a flexible principle that looks to substance,
rather than form, and protects creditors from any trans-
actions the debtor engages in that have the effect of
impairing their rights, while ensuring that the debtor can
continue to do business and assuring third parties
that transactions done with the debtor at arm’s length
10                                     Nos. 09-1699, 09-1861

will not be second-guessed.” Douglas G. Baird, Elements
of Bankruptcy 153-54 (4th ed. 2006). If the dividend was
part and parcel of the transaction that fatally depleted
new Crown’s assets, it was part and parcel of a fraudulent
conveyance. But if one has to call the overall transaction
something, the something is an LBO.
  The first formal difference to which the defendants
point is of no conceivable significance. An LBO can take
the form of an asset acquisition, In re OODC, LLC, 321 B.R.
128, 137-38 (Bankr. D. Del. 2005); 4 Norton Bankruptcy Law
& Practice, § 68:2 (3d ed. 2008); see also In re Aluminum
Mills Corp., 132 B.R. 869, 878 (Bankr. N.D. Ill. 1991), as the
defendants’ lawyer conceded at argument. The purchase
was nominally of the assets of old Crown, but actually
of the ownership of the company; for old Crown distrib-
uted the money it received in the sale forthwith to its
shareholders and from then on existed only as a shell.
New Crown operated under the same name as its prede-
cessor, and its trade creditors and other unsecured credi-
tors were not even told about the transaction. That reti-
cence would be normal if the stock of a corporation were
sold, rather than its assets; but in a sale of its assets, the
seller’s creditors would expect to be notified that
they would henceforth be dealing with a different firm.
  New Crown staved off bankruptcy for several years
and might have staved it off longer had it not been for
mistakes made by Smith in running the business. (His
biggest mistake was shifting from the production of
custom-designed to standardized machinery, a market in
which new Crown faced competition from hundreds of
Nos. 09-1699, 09-1861                                       11

firms rather than from just two.) But to assess the signifi-
cance of this point one must distinguish between insol-
vency and the acknowledgment of insolvency and
between insolvency and a lack of adequate capital. A
firm might be insolvent in the bankruptcy sense of
negative net worth—its liabilities exceeded its
assets, 11 U.S.C. § 101(32)(A); Buncher Co. v. Official Com-
mittee of Unsecured Creditors of Genfarm Limited Partnership
IV, 229 F.3d 245, 251 (3d Cir. 2000); Baird, Elements of
Bankruptcy, supra, at 10—yet it might continue operating
as long as it was able to raise enough money to pay its
debts as they became due, or even longer if its creditors
were forbearing.
  By encumbering all the company’s assets, the sale
reduced its ability to borrow on favorable terms, as it
could offer no collateral to lenders. And by surrendering
most of old Crown’s cash (the cash that was paid as a
dividend) and obligating itself to pay $100,000 a year to
the defendants and $495,000 a year to service the $3.1
million bank loan, without receiving anything in return
except Smith’s $500, new Crown was forced to engage in
continual borrowing during its remaining life, and on
unfavorable terms. Seven months before it declared
bankruptcy it had run up $8.3 million in debt and its
assets were worth less than half that amount.
  New Crown thus had made payments and incurred
obligations without receiving “reasonably equivalent
value” in return. Even if it was not actually insolvent
ab initio, as a result of the lack of equivalence it began life
with “unreasonably small” assets given the nature of its
12                                     Nos. 09-1699, 09-1861

business. That was what the bankruptcy judge meant
when he said that new Crown survived as long as it did
only on “life support.” That was a finding of fact to
which we defer.
  The difference between insolvency and “unreasonably
small” assets in the LBO context is the difference between
being bankrupt on the day the LBO is consummated
and having at that moment such meager assets that
bankruptcy is a consequence both likely and foreseeable.
Moody v. Security Pacific Business Credit, supra, 971 F.2d at
1069-70, 1072-73; Kipperman v. Onex Corp., 411 B.R. 805,
836 (N.D. Ga. 2009). Focusing on the second question
avoids haggling over whether at the moment of the
transfer the corporation became “technically” insolvent, a
question that only accountants could relish having to
answer. Moody v. Security Pacific Business Credit, supra, 971
F.2d at 1070 n. 22; Bruce A. Markell, “Toward True and
Plain Dealing: A Theory of Fraudulent Transfers Involving
Unreasonably Small Capital,” 21 Ind. L. Rev. 469, 498 (1988).
  But one has to be careful with a term like “unreasonably
small.” It is fuzzy, and in danger of being interpreted
under the influence of hindsight bias. One is tempted
to suppose that because a firm failed it must have
been inadequately capitalized. The temptation must be
resisted. See Kipperman v. Onex Corp., supra, 411 B.R. at 836;
Fidelity Bond & Mortgage Co. v. Brand, 371 B.R. 708, 723 (E.D.
Pa. 2007); MFS/Sun Life Trust-High Yield Series v. Van Dusen
Airport Services Co., 910 F. Supp. 913, 944 (S.D.N.Y. 1995);
Baird, “Fraudulent Conveyances, Agency Costs, and
Leveraged Buyouts,” supra, at 18. As we said in a related
Nos. 09-1699, 09-1861                                        13

context in Baldi v. Samuel Son & Co., 548 F.3d 579, 582
(7th Cir. 2008), “of course many start-ups fail, but if a
significant probability of failure sufficed to pronounce a
start-up insolvent, how would any start-up finance its
operations?” But new Crown started life almost with no
assets at all, for all its physical assets were encumbered
twice over, and the dividend plus new Crown’s interest
obligations drained the company of virtually all its cash.
It was naked to any financial storms that might assail it.
So the statutory condition for a fraudulent conveyance
was satisfied—or so at least the bankruptcy judge
could and did find without committing a clear error.
   The fact that mistakes by the buyer hastened the com-
pany’s demise is not a defense. Whether a transfer was
fraudulent when made depends on conditions that
existed when it was made, not on what happened later
to affect the timing of the company’s collapse. Moody v.
Security Pacific Business, supra, 971 F.2d at 1073; In re
Morse Tool, Inc., 148 B.R. 97, 133-34 (Bankr. D. Mass. 1992);
In re O’Day Corp., 126 B.R. 370, 407 (Bankr. D. Mass. 1991).
Not that the length of the interval between the LBO and
the collapse is irrelevant to determining the effect of the
transfer. It is pertinent evidence. The longer the interval,
the less likely that the collapse was fated at the formation
of the new company, although we are skeptical of cases
that can be read to suggest that ten or twelve months is a
long enough interval to create a presumption that the
terms of the LBO were not responsible for the company’s
failure. Moody v. Security Pacific Business Credit, Inc., supra,
971 F.2d at 1073-74; MFS/Sun Life Trust-High Yield Series
v. Van Dusen Airport Services Co., supra, 910 F. Supp. at 944;
14                                    Nos. 09-1699, 09-1861

In re Joy Recovery Technology Corp., 286 B.R. 54, 76 (Bankr.
N.D. Ill. 2002); In re Ohio Corrugating Co., 91 B.R. 430, 440
(Bankr. N.D. Ohio 1988). An inadequately capitalized
company may be able to stagger along for quite some
time, concealing its parlous state or persuading creditors
to avoid forcing it into a bankruptcy proceeding in
which perhaps only the lawyers will do well.
  The interval was longer than in previous cases, but the
defendants are unable to sketch a plausible narrative
in which new Crown could have survived indefinitely
despite being cash starved as a result of the terms of the
LBO that brought it into being. The fact that Smith made
mistakes in running the company does not weigh as
strongly as the defendants think. Everyone makes mis-
takes. That’s one reason why businesses need adequate
capital to have a good chance of surviving in the Darwin-
ian jungle that we call the market.
  The “dividend” was an integral part of the LBO, al-
though the trustee stumbled by failing to present evidence
concerning old Crown’s dividend policy. Family-owned
companies rarely pay dividends, but instead channel
profits into salary in order to avoid double taxation. E.g.,
Menard, Inc. v. Commissioner, 560 F.3d 620, 621-22 (7th Cir.
2009); Exacto Spring Corp. v. Commissioner, 196 F.3d 833,
834, 838 (7th Cir. 1999); Haffner’s Service Stations, Inc. v.
Commissioner, 326 F.3d 1, 3 (1st Cir. 2003). Had this
been shown to be true of old Crown it would have
clinched the case for the trustee. But we do know that at
least four of old Crown’s shareholders were officers or
directors and so presumably were salaried. We know as
Nos. 09-1699, 09-1861                                    15

well that the dividend represented 50 percent of Crown’s
1999 profits, which was unreasonably high given the cash
needs of the business. Crown’s owners drained it of
cash—all unbeknownst to the corporation’s present and
future unsecured creditors. These indications that the
dividend was part of the fraudulent transfer rather than
a normal distribution of previously earned profits—that
it wasn’t an ordinary dividend but rather the with-
drawal of an asset vital to the acquiring firm—were
sufficient to place a burden on the defendants of producing
evidence that it was a bona fide dividend, a burden
they failed to carry.
   They make a desperate argument that the $2.9 million
promissory note that new Crown issued to old Crown
was worth very little from the start—that there was
never any reasonable expectation that it would be paid.
(In the event, only $200,000, representing the first two
installments of interest, was paid.) They say that therefore
they were really selling the company for only $3.1 million,
and it was worth that much. This is virtually a con-
fession that the purpose of the note was to make sure
that the unsecured creditors would never be able to get
at the corporation’s assets in the event of bankruptcy;
any money left over after the bank loan was repaid would
inure to old Crown’s shareholders. True, the note was
issued to the shell of old Crown; but any money paid on
it would flow through to the other defendants (the share-
holders), as had the initial $3.1 million payment and
the two $100,000 interest payments.
 Determining that the transfer of assets to new Crown
was fraudulent was only the first stage of the adversary
16                                    Nos. 09-1699, 09-1861

action. The second stage was to restore to new Crown
(which is to say the trustee) the money that new Crown
had paid for the Crown assets. The bankruptcy judge
based the award of that money to the trustee on section 550
of the Bankruptcy Code, which defines the right of the
trustee in bankruptcy to recover money transferred in
a transaction that he is authorized by section 544 to
nullify, as the trustee in this case was. In re International
Administrative Services, Inc., 408 F.3d 689, 703-04 (11th
Cir. 2005). Section 550(b)(2) denies recovery of property
that was transferred to “any immediate or mediate good
faith transferee” of the initial transferee of a fraudulent
transfer if the subsequent transferee took for value and
“in good faith and without knowledge of the voidability
of the transfer avoided.” § 550(a)(2). If the asset
sale is recharacterized as a sale of old Crown by its share-
holders, as is implicit in our characterization of the sale
as an LBO (remember that a conventional LBO is a
stock acquisition), the shareholders lose the protection
of section 550(b) because they then are initial rather
than subsequent transferees and the “dividend”—the
retention of cash by old Crown—becomes an adjustment
in the purchase price. But we are now considering the
bankruptcy judge’s theory.
  If the transaction is not collapsed, the initial transferee
of the $3.3 million was old Crown and the second-
stage transferees were the shareholders. But they gave
no “value” in the transfer and so are not protected
by section 550(b). As the bankruptcy judge put it, “the
individual defendants gave nothing in exchange for
their distributions from Crown Stock. Those distributions
Nos. 09-1699, 09-1861                                     17

were made, not in return for some exchange of property
or services, or the payment of an antecedent debt, but
solely on account of their status as shareholders of the
company.”
   We would have a different case if the trustee were
going against someone who had sold a shareholder of old
Crown a boat that the shareholder paid for out of his
share of the proceeds of the sale of the company. The
seller of the boat, assuming he had no reason to know that
the money he was receiving didn’t really belong to the
buyer, would be protected by section 550(b)(2). “If the
recipient of a fraudulent conveyance uses the money to
buy a Rolls Royce, the auto dealer need not return the
money to the bankrupt even if the trustee can identify
the serial numbers on the bills. The misfortune of the
firm’s creditors is not a good reason to mulct the dealer,
who gave value for the money and was in no position
to monitor the debtor.” Bonded Financial Services, Inc. v.
European American Bank, 838 F.2d 890, 892 (7th Cir. 1988);
see also Rupp v. Markgraf, 95 F.3d 936, 938 (10th Cir. 1996);
In re M. Blackburn Mitchell Inc., 164 B.R. 117, 123
(Bankr. N.D. Cal. 1994).
  The defendants argue that even if their receipt of
the $3.3 million (plus the dividend) was voidable,
they shouldn’t have to return any of it because that would
give the trustee a windfall. Old Crown sold new Crown
assets that new Crown later sold in bankruptcy for
$3.7 million. If old Crown gets no credit for the initial
transfer, the debtor’s estate will have received in excess
of $7.6 million, consisting of the amount of the judgment
18                                  Nos. 09-1699, 09-1861

($3.295 million) plus the proceeds of the sale of the
assets ($3.7 million), plus the dividend money (almost
$600,000)—all to pay (besides administrative expenses)
total debts of only $5.2 or $5.3 million: $3.6 million to
the bank (the original bank loan, plus an additional
$500,000 that the bank lent new Crown, all of which
has been repaid to the bank), and $1.6 or $1.7 million to
the unsecured creditors.
  There will be no windfall. When we asked the trustee’s
lawyer at argument who would be entitled to money
obtained by him in excess of what new Crown’s creditors
are owed, he surprised us (he is a bankruptcy lawyer,
after all) by saying he didn’t know. The answer is
the debtor, 11 U.S.C. § 726(a)(6); In re Thompson, 965
F.2d 1136, 1144 n. 12 (1st Cir. 1992); Evans v. FDIC, 981
F.2d 978, 979-80 (8th Cir. 1992); In re Riverside-Linden
Investment Co., 925 F.2d 320, 323 (9th Cir. 1991) (per
curiam)—but only in the first instance. Although the
debtor is new Crown rather than old Crown, the fact
that the debtor receives any surplus obtained by
the trustee in his efforts to maximize the debtor’s estate
doesn’t mean that the money stays there. It can’t stay
there for long, since the estate is dissolved at the con-
clusion of the bankruptcy proceeding. The ultimate
recipients of assets remaining in the estate when it is
closed depend on state law, In re FBN Food Services, Inc.,
82 F.3d 1387, 1395-96 (7th Cir. 1996), because any
federal interest has been exhausted. But as far as we can
tell, should all the unsecured creditors of new Crown be
paid in full the only other potential claimants to any
surplus money in its estate will be the original share-
Nos. 09-1699, 09-1861                                     19

holders. The LBO was fraudulent only with respect to the
unsecured creditors. If and when they are paid in
full, the wrong committed by the shareholders will have
been righted and there will no reason to deny their
claims to whatever money is left over. Kitts v. Willson,
39 N.E. 313, 315 (Ind. 1894); Estates of Kalwitz v. Kalwitz,
717 N.E.2d 904, 910 (Ind. App. 1999); Morgan v. Catherwood,
167 N.E. 618, 622 (Ind. App. 1929).
  Another way to put this is that only a creditor can set
aside a fraudulent conveyance. Estates of Kalwitz v. Kalwitz,
supra. And a third way is that our reclassification of the
sale of assets as an LBO unravels the sale, because
the ostensible buyer paid nothing (well, $500), having
bought the company with the company’s own assets.
Since the sale is to be ignored, any money received from
the sale of the company’s assets that is not owed to a
creditor belongs to the original shareholders.
  The defendants make some other arguments, but they do
not require discussion. The trustee is entitled to the
judgment awarded by the bankruptcy judge, plus the
$590,328 dividend. After the claims of all creditors have
been satisfied and the costs of administering the bank-
ruptcy paid, any money remaining in the hands of the
trustee must be returned to the defendants. The judgment
of the district court is therefore affirmed in part and
reversed in part (the part relating to the dividend), and
the case remanded for further proceedings consistent
with this opinion.

                           11-18-09
