Fraudulent Transfer Claw-Back Litigation Post Tribune, Lyondell and SemGroup

Description

The limits of fraudulent transfer litigation were tested in matters arising from the Tribune, Lyondell and SemGroup bankruptcy cases where issues relating to rights of creditors to bring state law fraudulent transfer claims when the bankruptcy estate representative had not brought such claims were analyzed.

In a long-awaited decision, the Second Circuit in 2016 denied the Tribune creditors the right to claw back $8.3 billion that stockholders received prior to the leveraged buyout of the company on a constructive intent fraudulent transfer theory. The court held that Section 546(e) of the Code “preempted” the claim, despite the expiration of the two-year statute of limitations and the fact that claims were brought under state law by creditors, and not the bankruptcy estate representative.

Similar claims of automatic reversion of fraudulent conveyance claims to creditors were made in the Lyondell case. The Second Circuit’s ruling in Tribune is contrary to the earlier Bankruptcy Court ruling in Lyondell. In a summary order accompanying the Tribune case, the Second Circuit affirmed dismissal of a state law claim by the litigation trustee applying the Tribune rationale. Petitions for certiorari to the Supreme Court of the United States with respect to the Second Circuit’s Tribune and SemGroup decisions are currently pending.

Listen as our authoritative panel of bankruptcy attorneys discusses fraudulent transfer claw-back litigation post Tribune. The panel will discuss the potential reversion to creditors of state law fraudulent transfer claims abandoned in bankruptcy and arguments supporting/defending against such state law claims. The panel will also discuss the applicability of the bankruptcy safe harbor provisions to such claims.