Recoveries from fraudulent conveyance lawsuits can be a significant source of recovery for creditors of bankruptcy estates. Because a plaintiff seeking to avoid a prepetition transfer as constructively fraudulent must demonstrate that the debtor was insolvent or inadequately capitalized at the time of the challenged transfer, valuation analyses that support allegations of insolvency are critical.
Over the years, clients have sought my advice after they have obtained a judgment against a limited liability company or a corporation, and after they have tried, without success, to collect on that judgment. All of the typical judgment enforcement methods have already failed. Because judgment debtors generally do not volunteer payment and sometimes will take steps to make it much more difficult for a creditor to collect, this scenario is somewhat common. In response, clients will ask what they can do. There are a number of options. These include putting the ju
The U.S. District Court for the Southern District of New York, on April 27, 2014, issued a decision directing the bankruptcy court to dismiss fraudulent transfer complaints brought by the Madoff Securities Investor Protection Act of 1970 (“SIPA”) trustee against investment funds, their customers and individuals when the trustee failed “plausibly [to] allege that defendant[s] did not act in good faith.” SIPC v. Bernard L. Madoff Inv. Sec. LLC, 2014 WL 1651952, at *5 (S.D.N.Y. April 27, 2014).
A central purpose of bankruptcy is to grant debtors a fresh start – in bankruptcy terms, a “discharge” of existing debts. But not all debts are dischargeable. Bankruptcy Code § 523(a)(2)(A), for example, prevents the discharge of debts resulting from “false pretenses, a false representation, or actual fraud . . . .” What if a principal incurs a large debt based not on his own fraud, but on the fraud of his agent? Is that debt dischargeable? That was the question addressed recently by the Ninth Circuit Bankruptcy Appellate Panel inIn re Huh, BAP No.
A New York bankruptcy court has ruled that certain victims of Bernard Madoff’s highly publicized Ponzi scheme are not entitled to adjust their claims to account for inflation or interest. Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities LLC, 496 B.R. 744 (Bankr. S.D.N.Y. 2013). The Madoff Liquidation Trustee brought the motion asking the court to determine that Madoff customers’ “net equity” claims did not include “time-based damages” such as interest and inflation under the Securities Investor Protection Act (“SIPA”).
A New York bankruptcy court, on Dec. 12, 2013, issued a 166-page decision after a 34-day trial, concluding that the spin-off of a highly profitable energy business constituted a fraudulent transfer intended to shield the business from massive environmental liabilities, and awarding damages of up to approximately $14.5 billion.[1]Tronox Inc. et al. v. Kerr McGee et al. (In re Tronox et al.) (Bankruptcy S.D.N.Y. Dec. 12, 2013) (J.
Criminal defendants facing onerous restitution obligations as part of their sentence might contemplate a bankruptcy filing, in the hope of staving off the restitution obligation. In a case of first impression, the Second Circuit recently considered whether the Bankruptcy Code’s automatic stay provision halts a defendant’s obligation to pay restitution and firmly closed the door on that potential gambit.
Despite having more than its fair share of failed banks, Florida has not been a hotbed of D&O litigation. On November 9th, the FDIC filed only its second lawsuit against former directors of a failed banking institution. The defendants here are former directors of Century Bank, FSB (Sarasota, FL), which was placed into receivership in mid-November 2009. A copy of the FDIC’s complaint is available here.
The United States Court of Appeals for the Fifth Circuit, on Oct. 22, 2012, held that $1.6 million in political contributions made to five different political committees by Ponzi scheme defendants between 2000 and 2008 were fraudulent transfers made “with actual intent to hinder, delay, or defraud creditors” under the Texas version of the Uniform Fraudulent Transfer Act. Janvey v. Democratic Senatorial Campaign Committee, Inc., et al., 2012 WL 5207460 ___ F.3d ___ (5th Cir. 2012).