State Law Fraudulent Transfer Claims: Reversion to Individual Creditors

Description

The limits of fraudulent transfer litigation is being tested in a matter arising from the Tribune bankruptcy where District Court Judge Pauley of the Southern District of New York may ultimately decide the rights of creditors to bring state law fraudulent transfer claims when the bankruptcy estate representative has not brought all claims that arguably could have been brought.

The Tribune bankruptcy court decided that a non-bankruptcy court (which turned out to be Judge Pauley's court) should decide these issues.  In particular, whether state law fraudulent transfer claims may revert to creditors after the Bankruptcy Code statute of limitations for a trustee to bring such claims has expired. Similar claims of automatic reversion to creditors have been made in the Lyondell case, although the bankruptcy court has yet to rule on the issue.

A ruling which confirms that lawsuits may be brought by creditors against public shareholders of bankrupt LBOs could lead to a flood gate of law suits in this area, and undermine the applicability of the safe harbor protection of Sec. 546(e) of the Bankruptcy Code in such circumstance.

Listen as our authoritative panel of attorneys provides a review of the applicable law and arguments supporting and defending the issues raised.