On September 14, 2026 the United States Bankruptcy Court for the Southern District of California entered a fifteen-page memorandum decision explaining the basis for its final approval of a debtor's motion to obtain postpetition financing. The case is CashCall, Inc., Case No. 26-03102, before Judge J. Barrett Marum; the petition was filed July 20, 2026. The decision is captioned NOT FOR PUBLICATION.

The financing was provided by an entity owned by the debtor's founder, who was also the debtor's sole shareholder. The court approved it, but only after the parties made four changes to the agreement, and it used the occasion to set out a framework that had not previously been articulated in the district.

The decision describes the debtor as a California corporation that makes unsecured, high-interest loans to consumers, quoting Consumer Financial Protection Bureau v. CashCall, Inc., 135 F.4th 683, 687 (9th Cir. 2025), cert. denied, 146 S. Ct. 1779 (2026). The decision states that until recently the debtor's sole shareholder, sole director and chief executive officer and president was its founder.

At the petition date the debtor was no longer actively making loans and had no employees. It continues to collect receivables from its outstanding loan portfolio and scheduled accounts receivable of $4,477,289.56, of which $74,636.00 was noted as doubtful or uncollectible.

Two final judgments preceded the filing, both affirmed on appeal.

The decision states that, according to the Bureau, the pledged account currently holds approximately $144 million in assets, making the Bureau's judgment almost entirely secured, and notes that the debtor and the founder have continued to challenge enforcement in district court after the Ninth Circuit's affirmance and the Supreme Court's denial of certiorari. A footnote records that on September 11, 2026 the district court denied requests for relief from the judgment under Federal Rules of Civil Procedure 60(b)(5) and 60(b)(6).

The decision also notes, in a separate sentence, that the entity holding the pledged account is the debtor-in-possession lender.

The fraudulent transfer action

The class representative filed a fraudulent transfer action in Orange County Superior Court seeking to recover a $45 million distribution the debtor made to its founder in October 2021. The decision attributes to the class representative the characterization that the distribution was made days before closing arguments in the state court class action. That action was set for trial the month after the decision and is stayed by the bankruptcy filing.

The decision states that the chapter 11 petition came on the heels of an adverse ruling on the debtor's and the founder's motion for summary judgment in that action, issued ten days before the petition date.

The motion sought a secured, superpriority revolving facility in the aggregate principal amount of $3,995,000, with $1,300,000 proposed to be available on entry of an interim order. Interest accrues from the petition date at a per annum rate equal to SOFR, added to principal monthly, with no interest payment obligations until maturity or termination; the default rate is 2% per annum above that rate. The motion sought liens under sections 364(c)(2), 364(c)(3) and 364(d)(1) and a superpriority administrative claim under section 364(c)(1). The collateral package included, subject to entry of a final order, all avoidance actions brought under chapter 5 or applicable state law equivalents, together with their proceeds.

At the interim hearing the court granted only $300,000, the debtor's estimated expenses for one month, and only without a lien on the debtor's chapter 5 claims, which the lender agreed to forgo for interim purposes.

The decision states that the founder agreed to resign on his own volition, and describes the remedies change as one the court highlighted after the hearing as required to make the document consistent with the debtor's representations at the final hearing. The resignation letter states that the founder will not use his ownership shares or other rights to appoint directors or officers beyond the existing independent director and proposed chief restructuring officer, and will have no further involvement in the debtor's ongoing operational or litigation decisions.

The decision observes that the agreement, in effect, provides the debtor with an interest-free loan to the extent the debtor repays any portion of the balance from the proceeds of a recovery in the fraudulent transfer action.

Three parties timely opposed the motion: the United States Trustee, the Bureau, and the class judgment creditor. Before the final hearing the court issued a tentative ruling setting out findings and issues of concern and stating that it was not inclined to approve the motion absent satisfactory answers.

The court begins from section 364(c), which permits a debtor in possession unable to obtain unsecured credit as an administrative expense to obtain credit with superpriority, with a lien on estate property, or with a junior lien on already-encumbered property. The court states that although the subsection is phrased disjunctively, a debtor in possession may pursue financing under all three provisions.

The court then states that there is little case law within the Ninth Circuit, at the bankruptcy appellate panel or circuit level, which provides a framework for the bankruptcy court's evaluation of proposed financing under section 364(c). It takes from In re Harbin, 486 F.3d 510, 523 (9th Cir. 2007), the single factor of whether the financing transaction benefits the bankruptcy estate, and notes In re Fleetwood Enterprises, Inc., 471 B.R. 319 (9th Cir. BAP 2012).

In the absence of other Ninth Circuit authority, the court adopts, in its consideration of the debtor's request, the four factors articulated in In re Western Pacific Airlines, Inc., 223 B.R. 567, 572 (Bankr. D. Colo. 1997), as collected in In re Clouter Creek Rsrv. LLC, 669 B.R. 764, 781 (Bankr. D.S.C. 2025), observing that they dovetail with the Harbin benefit-to-the-estate factor.

The decision states that the debtor in possession seeking approval under section 364(c) and/or (d) bears the burden of proof on these factors.

The court holds that where the proposed financing is an insider transaction, as it states is the case here, the first factor is supplanted by a heightened scrutiny analysis. It notes that heightened scrutiny is not imposed directly by statute, and grounds it in the practice of applying such scrutiny to insider transactions under other provisions of the Code — section 363 sales, settlements and compromises, and insider proofs of claim.

The court traces the standard to Pepper v. Litton, 308 U.S. 295 (1939), including that decision's characterization of bankruptcy courts as courts of equity, its rule that the dealings of insiders with a corporate debtor are subject to rigorous scrutiny with the burden on the director or stockholder to prove both good faith and inherent fairness from the viewpoint of the corporation and those interested in it, and its test that the transaction must carry the earmarks of an arm's length bargain or equity will set it aside. The court notes that equitable subordination is now codified at section 510(c), but that Pepper's broader guidance on insider transactions generally remains relevant.

The decision records that the debtor initially claimed business judgment deference, then, in response to opposition from the United States Trustee and the Bureau, conceded that business judgment deference does not apply where the lender is an insider, and urged the court to adopt the framework of In re SPAC Recovery Co., 676 B.R. 260, 273 (Bankr. S.D.N.Y. 2026), which applied Delaware's entire fairness standard.

The court states that it is not persuaded that SPAC provides a wholesale framework, because that decision applied Delaware law to a Delaware corporate debtor while this debtor is a California corporation. The court does not reject the decision; it relies on SPAC later in the same opinion on the market-testing point.

The court states that although both standards reference fairness, there are in fact differences between them in terms of scope and application, among other things. It therefore applies the Pepper totality-of-the-circumstances inherent fairness test.

The court concludes that the revised agreement encapsulates terms inherently fair to the debtor and its creditors. It identifies five grounds.

The court states that its conclusion rests, based on the foregoing and particularly on the fact that the debtor is now operated by an independent chief restructuring officer with its decisions directed by an independent director, that the agreement is the result of good faith negotiation and inherently fair to the debtor, the estate and the creditors.

The court expressly does not decide whether the founder actually caused an improper shareholder distribution — stating that this is something it does not determine today, if ever.

The remaining factors

On the availability of alternative financing, the court states that the inquiry is highly factual and is normally satisfied by testing the market, but that a debtor may satisfy it by showing that going to market is of limited utility, citing SPAC at 275 for the proposition that the absence of a true market for litigation-claim assets makes soliciting competing bids of limited utility and often impracticable. The court then states that testing the market under this context is not conditioned on a reflexive number of loan applications or submission of bids, and that evidence in this context will typically be subject to proof by expert testimony. The qualifier matters: the holding is framed for the situation where no true market exists, not as a general rule for every section 364(c) case.

The evidence here was the financial advisor's declaration that traditional financing in this amount and on these terms was simply not available to this debtor, and that any lender willing to lend at this size would do so only by underwriting litigation-linked collateral as a litigation finance transaction on pricing and terms no better and likely materially worse. The court twice describes that evidence as uncontroverted.

On the best interests of the estate and creditors — which the court states likely presents the most important factor regarding a request for section 364(c) financing — the court states that it is mindful of the entire creditor body as a whole, that the Bureau and the class judgment creditor hold a significant amount of the debt but the debtor has other creditors, and that the opposing creditors' interests may not align directly with those of the debtor's other creditors. It identifies a collective interest in an orderly prosecution of the fraudulent transfer action and in an orderly reorganization or liquidation for the debtor. On the fourth factor, the court reasons that no better offers appear likely on these facts, a conclusion it states is at least partially borne out by the fact that no better offers came in between the initial and final hearings.

The decision concludes that the modifications to the finance terms and the actions undertaken by the debtor, the founder and the lender sanitized the issues with the agreement as initially filed and balanced the debtor's need to obtain financing to independently evaluate and potentially pursue the claims against the founder, while stating that the opposing parties' objections and arguments were well-taken.

The court granted the motion on a final basis at the August 26, 2026 hearing subject to revisions made on the record. The resulting order was signed September 1 and entered September 2, 2026; it authorizes financing on the terms of the second revised agreement, including the court's requested changes, and records the court's commitment to issue a separate memorandum decision explaining the basis for its decision no later than September 14, 2026. The memorandum decision issued on that date.

Two motions filed in the same week would unwind or overtake the ruling. Neither has been decided.

The decision is a bankruptcy court memorandum decision captioned NOT FOR PUBLICATION. It binds no other court, and its designation indicates it is not intended as citable authority, though it is publicly filed and available on the docket. Several features of the opinion nonetheless reach beyond the immediate parties.

The debtor's governance at the time of the decision consisted of a chief restructuring officer, who signed the petition, and an independent director. The debtor established a special committee of the board with sole and exclusive responsibility for all matters concerning insiders or related parties, with the independent director as its sole member.