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    No Safe Harbor for “Overarching Transfer”: Trustee Can Avoid Payments Passing Through Financial Institutions
    2018-03-01

    On February 27, 2018, the Supreme Court issued a significant decision that will increase the exposure of debt and equity investors that receive payments from all kinds of highly leveraged transactions, including leveraged buy-outs and dividend recapitalizations. The unanimous opinion in Merit Management Group, LP v.

    Filed under:
    USA, Capital Markets, Insolvency & Restructuring, Litigation, K&L Gates LLP, Safe harbor (law), Supreme Court of the United States
    Authors:
    Charles A. Dale III , Rick Giovannelli , James A. Wright III , David A. Mawhinney
    Location:
    USA
    Firm:
    K&L Gates LLP
    SCOTUS Rules that Bankruptcy Code Safe Harbor Does Not Protect Transfers in Which Financial Institutions Are “Mere Conduits”
    2018-03-01

    On February 27, 2018, the United States Supreme Court in a significant ruling held in Merit Management Group, LP v. FTI Consulting, Inc. that transfers of property of a debtor in which financial institutions are mere conduits or intermediaries may be avoidable. The Court ruled that the safe harbor provisions of section 546(e) of the Bankruptcy Code do not protect such transfers from avoidance.

    Filed under:
    USA, Capital Markets, Insolvency & Restructuring, Litigation, Hunton Andrews Kurth LLP, Supreme Court of the United States, Eleventh Circuit, Seventh Circuit, Tenth Circuit
    Authors:
    Paul N. Silverstein , David A. Zdunkewicz
    Location:
    USA
    Firm:
    Hunton Andrews Kurth LLP
    Resolving Circuit Split, US Supreme Court Holds Section 546(e) Safe Harbor Applies Only to Protected Parties
    2018-03-02

    The Bankruptcy Code allows trustees, as well as debtors-in-possession and in some circumstances creditors’ committees, to set aside and recover certain transfers for the benefit of the bankruptcy estate. The purpose of the avoidance powers is to maximize funds available for creditors and to ensure equality of distribution among creditors’ claims. The avoidance powers are not without bounds, however, as the Code sets forth a number of exceptions — most notably, the so-called “securities contract safe harbor” under Section 546(e) of the Bankruptcy Code.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Dechert LLP, Supreme Court of the United States
    Location:
    USA
    Firm:
    Dechert LLP
    Supreme Court Issues Decision on Section 546(e) Safe Harbor Provision Resolving Long-Standing Circuit Split
    2018-02-28

    On February 27, 2018, the Supreme Court handed down a unanimous opinion, authored by Justice Sotomayor, resolving a Circuit split over the interpretation of Section 546(e) of the Bankruptcy Code, the “safe harbor” provision that shields specified types of payments “made by or to (or for the benefit of)” a financial institution from avoidance on fraudulent transfer grounds.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Kramer Levin Naftalis & Frankel LLP, Supreme Court of the United States
    Authors:
    Andrew Wyatt Pollack
    Location:
    USA
    Firm:
    Kramer Levin Naftalis & Frankel LLP
    Supreme Court Adopts Restrictive Minority View of Section 546(e) Safe Harbor Regarding Certain Securities Payments
    2018-02-28

    On February 27, 2018, a unanimous Supreme Court held in Merit Management Group, LP v. FTI Consulting, Inc. (link here) that an otherwise-avoidable transfer is not subject to the safe harbor in Section 546(e) (which provides, in relevant part, a trustee may not avoid a transfer that is a “settlement payment . . . made by or to (or for the benefit of) a . . . financial institution” or that “is a transfer made by or to (or for the benefit of) a . . .

    Filed under:
    USA, Corporate Finance/M&A, Insolvency & Restructuring, Litigation, Spencer Fane LLP, Safe harbor (law), Credit Suisse, Supreme Court of the United States
    Authors:
    Ryan C. Hardy
    Location:
    USA
    Firm:
    Spencer Fane LLP
    Substance Over Form: Supreme Court Ruling Strengthens Avoidance Powers of Bankruptcy Trustees
    2018-02-28

    On February 27, 2018, the Supreme Court of the United States decided Merit Management Group, LP v. FTI Consulting, Inc. The key issue in the case was the scope of Section 546(e) of the bankruptcy code which insulates certain transactions from a bankruptcy trustee’s statutory avoidance powers. A bankruptcy trustee may avoid many types of pre-petition transfers, including preferential payments made to creditors within 90 days of a bankruptcy petition and transfers made for less than reasonably equivalent value completed within two years of a bankruptcy filing.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Nelson Mullins Riley & Scarborough LLP, Safe harbor (law), Supreme Court of the United States
    Authors:
    Dylan Trache
    Location:
    USA
    Firm:
    Nelson Mullins Riley & Scarborough LLP
    Major Section 546(c) Safe Harbor Issue Resolved by the Supreme Court
    2018-02-28

    Our post last year concerning “[t]he long-running litigation spawned by the leveraged buyout of Tribune Company . . . and the subsequent bankruptcy case”[1] described a case--FTI v. Merit[2]--that was then pending in the Supreme Court.

    Filed under:
    USA, Capital Markets, Insolvency & Restructuring, Litigation, Patterson Belknap Webb & Tyler LLP, Bankruptcy, Supreme Court of the United States
    Location:
    USA
    Firm:
    Patterson Belknap Webb & Tyler LLP
    Supreme Court Narrows the Scope of a Bankruptcy 'Safe Harbor' Where Financial Institutions are Mere Intermediaries
    2018-03-01

    Investors currently relying on certain of the Bankruptcy Code's safe harbor provisions to save them from clawback claims should consider finding new shelter. The U.S. Supreme Court in Merit Management Group, LP v.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Richards Kibbe & Orbe LLP, Supreme Court of the United States
    Authors:
    Gregory Gennady Plotko , David W.T. Daniels
    Location:
    USA
    Firm:
    Richards Kibbe & Orbe LLP
    High Court Limits Scope of 546(e) Safe Harbor for Recipients of “Conduit” Transactions
    2018-03-01

    Yesterday, the United States Supreme Court, in Merit Management Group, LP v. FTI Consulting, Inc., Case No. 16-784, ruled that the “securities safe harbor” under section 546(e) of the Bankruptcy Code, 11 U.S.C. §§ 101-1532, does not shield transferees from liability simply because a particular transaction was routed through a financial intermediary—so-called “conduit transactions.”

    Filed under:
    USA, Capital Markets, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP, Supreme Court of the United States, Second Circuit, High Court of Justice (England & Wales), Seventh Circuit
    Authors:
    Kyle R. Satterfield
    Location:
    USA
    Firm:
    Weil Gotshal & Manges LLP
    Not So Safe Anymore: SCOTUS Narrowly Construes Safe Harbor for Avoidable Transfers
    2018-02-27

    The Circuit Courts of Appeal have split on whether a prepetition transfer made by a debtor is avoidable if the transfer was made through a financial intermediary that was a mere conduit. Today, the Supreme Court unanimously resolved the split by deciding that transfers through “mere conduits” are not protected. This is a major (and adverse) decision for lenders, bondholders and noteholders who receive payments through an intermediary such as a disbursing agent.

    Filed under:
    USA, Corporate Finance/M&A, Insolvency & Restructuring, Litigation, Bracewell LLP, Safe harbor (law), Credit Suisse, Supreme Court of the United States
    Authors:
    Jason G. Cohen
    Location:
    USA
    Firm:
    Bracewell LLP

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