Tronox v. Kerr-McGee: Game Changing Ruling on Fraudulent Transfer and Spin-Offs to Shed Legacy Liabilities

Description

In a ground-breaking environmental fraudulent transfer case, a New York Bankruptcy court ruled in favor of the Tronox Inc. litigation trust. Damages between $5.1 and $14.1 billion are anticipated. This ruling has a considerable impact on companies with substantial liabilities that attempt to restructure outside of bankruptcy.

The court held that Kerr-McGee’s transfer of valuable oil and gas assets to a new company and spin-off of the legacy liabilities to newly-formed Tronox constituted fraudulent transfer and that the transaction, which left Tronox insolvent, was not made for reasonably equivalent value.   

The opinion also discusses the Stern v. Marshall issue of consent to the bankruptcy’s court’s jurisdiction, holding that it had authority to enter final judgment because Kerr-McGee filed proofs of claims against the debtors for not honoring terms of the spin-off, including failure defend environmental litigation against Tronox.  

Listen as our authoritative panel of bankruptcy practitioners explains the history and key issues in the Tronox ruling. The panel will discuss the court’s application of the laws of fraudulent conveyance to corporate spin-offs designed to shed legacy liabilities, the applicable statute of limitations, consent to the bankruptcy court’s jurisdiction to enter final judgment, and the intricacies of damage calculations.