When a debtor’s business is sold, refinanced, or restructured, one of the first questions is “who is on the other side of the deal?" In the middle market, the answer is frequently a principal’s friend, a family member, an entity the principal once owned, or a new entity associated with the principal incorporated solely for the deal. These transactions are often structured so that a deal benefiting an insider can be presented as an arm’s-length sale to a stranger. However, the Bankruptcy Code anticipates this. Even where a counterparty does not fit neatly within the statutory list of insiders (11 U.S.C. § 101(31)), courts can and do treat that party as a “non-statutory insider,” with significant consequences for the scrutiny applied to the deal. A recent decision out of the Northern District of Oklahoma, In re Nguyen Win Properties LLC, No. 25-11795-T, 2026 WL 1865670 (Bankr. N.D. Okla. June 29, 2026), shows exactly what trustees and creditors should be looking for.

Section 101(31) of the Bankruptcy Code defines “insider,” and for a corporate debtor that definition “includes” directors, officers, persons in control of the debtor, general partners, and relatives of any of those persons. Pursuant to section 102(3) of the Bankruptcy Code, the terms “includes” and “including” are not limiting. 11 U.S.C. § 102(3). As the Supreme Court acknowledged in U.S. Bank N.A. v. Village at Lakeridge, LLC, 583 U.S. 387 (2018), courts have uniformly read those provisions together to mean that the statutory list is not exhaustive, which allows courts to recognize insiders not named in the statute. Instead of relying on the strict statutory definition of “insider,” the term is meant to reach anyone with a sufficiently close relationship to the debtor that their dealings warrant closer scrutiny than an outside third party.

Where a transaction benefits an insider, courts apply a heightened scrutiny to the fairness of the deal and the good faith of the parties, because insider transactions are rife with the possibility of abuse. An insider bears the burden of showing the “entire fairness” of the transaction, meaning both fair dealing and a fair price. The Nguyen case illustrates this analysis. In that case, the debtor owned a portfolio of residential properties and sought to sell its interest in seventy parcels to KNZ Holdings, LLC, in a private sale pursuant to section 363(b) of the Bankruptcy Code. However, the debtor was not selling the homes themselves, but rather, a different interest. Many of the properties had already been sold to occupants under contracts for deed, a form of seller financing in which the buyer takes immediate possession and pays the price in installments over time while the seller retains legal title until the final payment. Thus, the debtor had only the right to collect remaining installment payments and the right to foreclose should an occupant default.

As of the petition date, KNZ was wholly owned by the debtor’s sole owner and manager, Mr. Nguyen. However, once the case was filed, the intended lender announced that it would only finance a purchase by a non-debtor entity. Nguyen therefore transferred his entire interest in KNZ to a friend (Ms. Robertson), for no consideration. The debtor then presented the sale to KNZ as a transaction with a third party, despite the fact that the entity was formerly controlled by the debtor’s principal.

Two secured lenders objected on the grounds that they would consent to a free-and-clear sale pursuant to section 363(f)(2) only if their claims were paid in full at closing, which the debtor had not committed to do. The United States Trustee and one lender also objected on the grounds that KNZ was an insider of the Debtor and the sale had not been proposed in good faith, a challenge that ultimately drove the court’s heightened-scrutiny analysis and the denial of the sale. Applying the Tenth Circuit’s test from In re U.S. Medical, Inc., 531 F.3d 1272 (10th Cir. 2008), with respect to Ms. Robertson’s insider status, the court analyzed: (a) whether the relationship between the buyer and the debtor was close enough to be comparable to the enumerated statutory categories, and (b) whether the transaction was negotiated at arm’s length.

With respect to the first element, the court found that nothing about the transfer to Ms. Robertson changed the facts and reality of the situation. Mr. Nguyen selected KNZ as the buyer, arranged the financing himself while remaining in contact with the lender, and otherwise remained active on both sides of the deal. Ms. Robertson, on the other hand, did not testify on behalf of KNZ, offered no evidence of any role in the negotiations, and obtained no independent valuation. The court therefore concluded that KNZ remained under Mr. Nguyen’s control notwithstanding the prior transfer to Ms. Robertson. Importantly, evidence that Nguyen “actual[ly] controll[ed]” KNZ was not required, simply because courts “stop short of requiring ‘actual control,’ because such a person would qualify as a statutory insider.”

With respect to the second element, the absence of arm’s-length dealing was also clear. KNZ presented no evidence that Ms. Robertson negotiated price or terms or obtained an appraisal of the interest. With both prongs satisfied, the court found KNZ to be a non-statutory insider and applied heightened scrutiny. With that increased scrutiny, the bankruptcy court denied the sale. With no term sheet, no financing commitment, and no testimony from Ms. Robertson or the lender, the court found the proposal had “the feel of an ill-conceived proposal” designed to quickly shed the secured creditors’ liens and allow Mr. Nguyen to escape his personal guaranties of the debtor's obligations. On price, the debtor’s interests were never marketed or appraised, and the court concluded the numbers were “driven by Debtor’s desire to ‘buy out’ the secured creditors’ interests instead of reflecting the values of the underlying assets.”

For trustees and creditors, Nguyen is a template for testing whether a purported stranger is in substance an insider, despite not meeting the statutory requirements. Other parties must closely scrutinize the relationship between the debtor and the buyer, lender, or other counterparty in order to determine who actually owns the counterparty and whether: (a) ownership changed shortly before or after filing for little to no consideration; (b) arms’ length negotiations occurred between parties with adverse interests; and (c) elements typical of a middle-market deal, such as appraisals, term sheets, and independent counsel, are present or conspicuously absent. While no single fact controls, the two-prong test set forth in Nguyen can help establish insider status and increase the scrutiny given to the deal. This analysis is not only relevant in the event of a sale, as it will extend the preference lookback period, help identify and strengthen a fraudulent transfer claim, and even change plan-voting math. Despite parties insisting that the deal was at arm’s length, as Nguyen shows, that label can often be overcome.