Your business now faces an adversary complaint filed by the bankruptcy trustee. The complaint has several counts alleging that your business received fraudulent transfers of assets from a debtor in bankruptcy. The complaint alleges two types of fraudulent transfers. The first is actual fraud, which involves a debtor’s intent to delay, hinder, or defraud its creditors. The second is referred to as constructive fraud, which involves a debtor’s transfer of assets made in exchange for inadequate consideration.

Type of Transferee

Market participants invest billions of dollars each year in debt, secured and unsecured. The credit support for the debt would be illusory without carefully crafted covenants that prevent the company from selling or transferring its assets outside the reach of creditors. Reliance on these covenants is critical for investors.

The Bottom Line

Banks regularly enter into commercial relationships with their customers such as opening new depository accounts.  These relationships are often contractual in nature and seem relatively straightforward until an unexpected incident occurs that causes the relationship to unravel. What then are the duties owed by each party to each another?  The default rule seems to be that the terms and conditions that the parties agreed to at first govern the parties’ actions throughout their banking relationship.

As any financial or legal professional will advise, a promise, representation or agreement should be in writing. This sound advice applies equally in the bankruptcy context, as the Supreme Court recently held.[1] When extending credit to an individual who makes a statement about her financial condition—whether it be her overall financial status or as to a specific asset (such as using a tax refund to repay a debt)—the creditor must get that statement in writing.

Even if a U.S. court has jurisdiction over a lawsuit involving foreign litigants, the court may conclude that a foreign court is better suited to adjudicate the dispute because either: (i) it would be more convenient, fair, or efficient for the foreign court to do so (a doctrine referred to as "forum non conveniens"); or (ii) the U.S. court concludes that it should defer to the foreign court as a matter of international comity. Both of these doctrines were addressed in a ruling recently handed down by the U.S.

In Momentive Performance Materials, the Second Circuit declined to dismiss as equitably moot the appeals of certain noteholders.

The Bankruptcy Code contains an array of provisions designed to encourage lenders to provide debtor-in-possession ("DIP") financing in chapter 11 cases, including authorization of "superpriority" administrative expense claims and "priming" liens designed to ensure that DIP loans are repaid. However, as illustrated by a ruling recently handed down by the U.S.

On April 3, 2018, the U.S. Supreme Court issued an order that, in light of its recent ruling in Merit Management Group LP v. FTI Consulting Inc., 138 S. Ct. 883, No. 16-784 (Feb. 27, 2018), the Court would defer consideration of a petition seeking review of a 2016 decision by the U.S. Court of Appeals for the Second Circuit in the Tribune Co.

In the service of the Bankruptcy Code’s goals of giving debtors a "fresh start" and ensuring that estate assets are fairly and equally distributed among similarly situated creditors, the Bankruptcy Code contains an array of advantageous provisions that either do not exist under non-bankruptcy law or are more difficult to deploy. These include, among other things, the ability to reject burdensome contracts, to avoid preferential or fraudulent transfers, and to limit the amount of certain types of creditor claims.