KRS Summary on Fraudulent Transfers

A fraudulent transfer (fraudulent conveyance) is an attempt to avoid debt by transferring money to another person or company. It is often an issue in debtor/creditor relations, particularly in bankruptcy when referring to insolvent debtors.

A recent bankruptcy court decision denying a royalty owner's motion for summary judgment is highly relevant to any investor that currently owns a term royalty interest or is considering such an investment. The United States Bankruptcy Court for the Southern District of Texas found in NGP Capital Resources Co. v. ATP Oil & Gas Corp. (In re ATP Oil & Gas Corp.), No. 12-3443, 2014 Bankr. LEXIS 33 (Bankr. S.D. Tex. Jan.

In an opinion with serious implications for the treatment of overriding royalty interests ("ORRIs"), a Southern District of Texas Bankruptcy Court ruled that under Louisiana law, an ORRI could be recharacterized as debt rather than a royalty interest, even if the conveyance was facially consistent with an ORRI. An ORRI that is treated as debt would likely have a much lower priority for payment in bankruptcy than an ORRI treated as a royalty interest.

Northern District of Oklahoma Chief Bankruptcy Judge Terrence L. Michael’s introduction to the opinion in In re Harrison (2013 WL 6859303) serves as a good introduction to this post:

Most people think of an oil and gas mineral “lease” as, so named, a lease. However, this common thinking is not necessarily accurate, both with respect to state and federal law and in particular in the bankruptcy courts in the United States.

Olsen v. Heaver (In re Heaver), 473 B.R. 734 (Bankr. N.D. Ill. 2012) –

The short story is that when a deed and mortgage are executed at the same time, but the mortgage is recorded before the deed, the recorded mortgage does not provide constructive notice and can be avoided in a bankruptcy – at least under Illinois law as interpreted by the Heaver bankruptcy court.

In In re Crane, the Bankruptcy Court for the Central District of Illinois recently held that a mortgage can be avoided in bankruptcy if it fails to include the maturity date and the interest rate of the underlying debt within the mortgage document. The court found that failing to include these loan terms on the face of the mortgage as recorded, violated the requirements of Illinois conveyancing statutes, and therefore did not provide the constructive notice to the trustee necessary for preventing the avoidance.

In a decision that potentially has serious implications for mortgage financing transactions in Illinois, the Bankruptcy Court for the Central District of Illinois recently held that a mortgage is avoidable in bankruptcy if it fails to include the maturity date and the interest rate of the underlying debt within the mortgage document as recorded. In re Crane, Case No. 11-90592, U.S. Dist. Ct. C.D. Ill., February 29, 2012; Supplemental Opinion and Order, April 5, 2012.

This Installment will address the potential legal disabilities that exist under the New York Debtor and Creditor Law for the Wilpon/Katz families, the owners of the New York Mets (collectively, the “Wilpon Interests”), in their effort to sell a minority interest(s) in the Mets, in light of the existence of the lawsuit against them (the “Wilpon Case”) by Irving Picard, the Trustee in the Bernard L. Madoff bankruptcy.

A recent opinion from the Bankruptcy Court in the Eastern District of North Carolina adds another chapter to the continuing saga of attacks lodged against the validity of deeds of trust encumbering real property owned by debtors.  In re Deuce Investments, Inc.