In re: ACRO Business Finance Corp., Debtor. ACRO Business Finance Corp., Plaintiff, v. M&I Marshall and Ilsley Bank, Stearns Bank, North Star Bank, Landmark Community Bank, Excel Bank, Donald E. Glesmann, People's Bank of Commerce, Virgil Eihusen, John Hanson, and ArrowHead Consulting Group, Ltd., Defendants., 357 B.R. 785

Summary

Debtor was an asset-based lender that made loans to small businesses. It sold part of the loans to other lenders through participation agreements. As to whether the agreements were true participations, the court applied four factors, whether: (1) money was advanced by a participant to a lead lender, (2) the participant's right to repayment only arose when the lead lender was paid, (3) only the lead lender could seek legal recourse against the borrower, and (4) the document was evidence of the parties' true intentions. The participants' agreements with debtor met each requirement of a true participation. The court rejected the argument that the characterization of the participated loans as secured borrowing in the debtor's financing statements from 2004 indicated that the agreements were loans and not participations. Next, after examining the parties' Credit and Security Agreement, and in light of its ambiguity, extrinsic evidence, it determined that the creditor's security interest did...