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IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA In re ALFRED and DOREEN DALECIO,                                                No. 93-11361        Debtors. ___________________________/ RAYMOND A. CAREY, Trustee,        Plaintiff,      v.                                                                                               A.P. No. 95-1283 ALFRED DALECIO, et al.,        Defendants. ______________________________/ Memorandum of Decision      Debtors Alfred and Doreen Dalecio filed a Chapter 11 bankruptcy petition on June 7, 1993. At that time, they owned all of the shares of Aldorina, Inc. This corporation operated a restaurant known as "Ristorante Dalecio."      On February 28, 1995, while they were still Chapter 11 debtors in possession and without any sort of notice to creditors, the Dalecios issued 1500 new shares in the corporation to defendants Stewart and Sherrill Iniguez, George and Denise Brown, and Nelson and Alison Julian. These are the Dalecios' daughters and their husbands. The effect of the stock issuance was to reduce the bankruptcy estate's interest in the corporation from 100% to 25%.      About two months after the transfer, the Dalecios converted their case from Chapter 11 to Chapter 7. By this adversary proceeding plaintiff Raymond Carey, the Chapter 7 trustee, seeks to avoid the issuance of stock pursuant to section 549(a) of the Bankruptcy Code as an unauthorized postpetition transfer. Now before the court is the trustee's motion for summary judgment and defendants' countermotion.      Defendants have created a triable issue of fact as to whether they supplied valuable consideration for the stock issuance. They have submitted declarations alleging that they had a written agreement whereby if they worked for a certain length of time they would be entitled to an ownership interest in the corporation. For the purposes of this motion, the court assumes that this is true. Nonetheless, the trustee is entitled to judgment as a matter of law.      It is undisputed that the Dalecios issued the stock while they were fiduciaries for their estate as debtors in possession. It is also undisputed that no notice was given to creditors, and that as a result of the issuance the estate's ownership of the corporation was reduced from 100% to 25%. These facts alone mandate judgment for the trustee.      Defendants rely on the wording of section 549(a), which provides that a trustee may recover property of the estate transferred after commencement of the case and not authorized by the Bankruptcy Code or the court. They argue that there was no transfer of property of the estate, since the stock was issued by the corporation. However, this reading is far to narrow and ignores section 101(54) of the Code, which provides:            (54) "transfer" means every mode, direct or             indirect, absolute or conditional, voluntary            or involuntary, of disposing of or parting with            property or with an interest in property . . . .            [emphasis added].      Before Dalecios issued the stock, they owned 100% of the corporation. After the issuance, they owned only 25%. The value of the estate's interest in the corporation, and through it the restaurant, was worth only 25% of what it had been worth before the transfer¹. Clearly there was a transfer of property of the estate. The fact that it was done indirectly, by the issuance of new stock, instead of directly (the Dalecios could have accomplished the same result by transferring 375 shares of their own stock) is irrelevant because section 101(54) covers indirect as well as direct transfers. In a court of equity the substance of a transaction governs the applicable law, not the form.      For the foregoing reasons, summary judgment will be entered in favor of the trustee avoiding the issuance of the stock pursuant to section 549(a) of the Code. Counsel for the trustee shall submit an appropriate form of order and an appropriate form of judgment forthwith.
Dated: March 19, 1996                                                _______________________                                                                                               Alan Jaroslovsky                                                                                               U.S. Bankruptcy Judge
______      1. Defendants argue that the corporation had no value, so the estate was not diminished. However, the trustee has entered into an agreement to sell the stock for $120,000.00 to a third party. The court sees no relevance to defendants' charges relating to the motivations of the buyer; if the stock issuance is avoided, the trustee will have $120,000.00 for distribution to cred