(CN) - Lucent Technologies must return a $188.2 million loan payment to the trustee of bankrupt Winstar Communications, the 3rd Circuit ruled.
Winstar, a Delaware telecommunications company, used a $200 million loan from Siemens to pay off Lucent. Bankruptcy trustee Christine Schubert sued to recover the funds from Lucent, and the bankruptcy court ruled in her favor, since the payment was an "avoidable preference."
"Because that transaction occurred more than 90 days before Winstar filed for bankruptcy, the transaction was avoidable only if Lucent was an 'insider' of Winstar," wrote Judge Sloviter of the federal appeals court in Philadelphia.
An insider in this case controls the actions of the other entity. The bankruptcy court ruled that Lucent was an insider of Winstar. Lucent worked with Winstar to develop a global broadband telecommunications network.
However, the bankruptcy court determined that the partnership was not on equal footing.
"What began as a strategic partnership to benefit both parties quickly degenerated into a relationship in which the much larger company (Lucent) bullied and threatened the smaller (Winstar) into taking actions that were designed to benefit the larger at the expense of the smaller," the bankruptcy court found.
The 3rd Circuit used these findings in its ruling against Lucent's appeal.
"We cannot conclude that the bankruptcy court's findings that the parties did not deal at arm's length was clearly erroneous, and we hold that Lucent was a non-statutory insider of Winstar," Sloviter wrote.
"Therefore, the trustee was not limited by the 90-day look back but could recover Winstar's payment of $188.2 million to Lucent, which occurred in the year prior to bankruptcy."
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