Dealing a major blow to the trustee’s efforts to recover fraudulent transfers on behalf of the bankruptcy estate of the company run by Bernard Madoff, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York held in SIPC v. Bernard L. Madoff Investment Securities LLC1 that the Bankruptcy Code cannot be used to recover fraudulent transfers of funds that occur entirely outside the United States.
A purchaser of assets from a debtor in bankruptcy may not be able to rely entirely on bankruptcy court approval of the sale to bar a claim arising long after the sale and based on a claimed defect in a product sold by the debtor years prior to its bankruptcy.
Although bankruptcy court sale orders routinely shield asset purchasers from successor liability claims, that protection is not unlimited, particularly where a claimant did not and could not have received notice of the sale.