Fifth Circuit Rejects Breach of Fiduciary Duty and Fraudulent Transfer Claims

By Michael L. Cook*

THE BANKING LAW JOURNAL

First Circuit Affirms Dismissal of Fraudulent Transfer and Fiduciary Duty Claims

Michael L. Cook* This article discusses a recent U.S. Court of Appeals for the First Circuit decision holding that the debt-financed purchase of a business was not a fraudulent transfer and did not violate the fiduciary duty of the company's directors.

The securities safe harbor protection of Bankruptcy Code (“Code”) § 546(e) does not protect allegedly fraudulent “transfers in which financial institutions served as mere conduits,” held the U.S. Supreme Court on Feb. 27, 2018. Merit Management Group LP v. FTI Consulting Inc., 2018 WL 1054879, *7 (2018). Affirming the Seventh Circuit’s reinstatement of the bankruptcy trustee’s complaint alleging the insolvent debtor’s overpayment for a stock interest, the Court found the payment not covered by §546(e) and thus recoverable. The district court had dismissed the trustee’s claim.

Background

In our previous publication on the subject, we had discussed the changes introduced by the Ordinance dated 23 November 2017 (the Ordinance), amending the Insolvency and Bankruptcy Code, 2016 (Code) (see our Ergo Newsflash dated 24 November 2017).

A super-priority debtor-in-possession (“DIP”) lender with a lien on all of the debtor’s assets has no “better claim” to a Chapter 11’s debtor’s leased property than the lessor, held the U.S. Court of Appeals for the Seventh Circuit on Jan. 11, 2018.Banco Panamericano, Inc. v. City of Peoria, 2018 U.S. App. LEXIS 738, *12 (7th Cir. Jan. 11, 2018). According to the court, the “lease between [the debtor] and [the lessor] gave [the debtor] no post-termination property interest” in “installations or structures” on the debtor’s property.Id.

On 15 December 2017, the Hon’ble Supreme Court of India (Supreme Court) delivered a landmark judgment in Macquarie Bank v. Shilpi Cables, Civil Appeal 15135/2017 on whether Section 9(3)(c) of the Insolvency and Bankruptcy Code 2016 (Code) is mandatory and whether a demand notice of an unpaid operational debt can be issued by a lawyer on behalf of the operational creditor. The Supreme Court allowed the appeals of Macquarie Bank against the judgment of the National Company Law Appellate Tribunal (Appellate Tribunal) in Shilpi Cable Technologies v.

The National Company Law Appellate Tribunal, New Delhi (NCLAT) on 7 November 2017 passed a judgment in the case of M/s Speculum Plast Private Limited v. PTC Techno Private Limited, putting to rest the question of the applicability of the Limitation Act, 1963 (Limitation Act) to the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC). The present judgment comes in the wake of the decision of the NCLAT in Neelkanth Township and Construction Pvt. Ltd.

In a recent decision of M/s Ksheeraabd Constructions Private Limited v M/s Vijay Nirman Company Private Limited, the National Company Law Appellate Tribunal (NCLAT) has held that proceedings pending under Section 34 of the Arbitration and Conciliation Act, 1996 (Act) does not constitute a ‘dispute’ under Section 8 of the Insolvency and Bankruptcy Code, 2016 (Code) and cannot come in the way of initiation of the insolvency resolution process, in terms of Section 9 of the Code.

Background

“[T]he largely debt-financed purchase of a family-owned [business] was not a fraudulent [transfer] and did not amount to a violation of the fiduciary duty of the company’s directors,” held the U.S. Court of Appeals for the First Circuit on Dec. 4, 2017. In re Irving Tanning Co., 2017 W.L. 5988834, *1 (1st Cir. Dec. 4, 2017).