On January 14, 2014, the U.S. Bankruptcy Court for the Southern District of New York held that the Bankruptcy Code’s § 546(e) safe-harbor provision neither protects against nor preempts state law constructive fraudulent transfer claims brought on behalf of individual creditors against cashed-out former shareholders of a company acquired in a leveraged buyout (“LBO”). By refusing to dismiss these claims, prosecuted by a creditor trust pursuant to a confirmed plan of reorganization, Bankruptcy Judge Robert E. Gerber’s opinion in Weisfelner v. Fund 1. (In re Lyondell Chemical Co.), Adv. Proc. Case No. 10-4609 (REG), 2014 WL 118036 (Bankr. S.D.N.Y. Jan. 14, 2014), opens up the former shareholders who received distributions under a failed LBO to creditor fraudulent conveyance claims where the Bankruptcy Code § 546(e) safe harbors would preclude a debtor from pursuing such claims.
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