Delaware Court Protects Lenders from Fraudulent Transfer Suit For Payments Made and Collateral Granted on Account of Antecedent Debt

December 14, 2010

In an important recent decision, In re Champion Enterprises Inc., the U.S. Bankruptcy Court for the District of Delaware held that payments made and collateral granted on account of valid third-party antecedent debt, while potentially preferential, are per se not fraudulent transfers.  Prior to the Champion decision, courts outside of the Southern District of New York had nearly uniformly applied a more flexible "facts and circumstances test" to such transfers.

The following article, "Delaware Court 'Champions' Per Se Rule for Constructive Fraudulent Transfers," published by Brian M. Resnick and Darren S. Klein in the December/January 2011 issue of the American Bankruptcy Institute Journal, examines the scope and implications of the per se rule and the facts and circumstances test through the lens of the Champion decision. The article surveys the opinions of courts following each rule and discusses the practical implications for lenders assessing their fraudulent transfer risk under each regime.

Click here for a copy of the article.


If you have questions regarding this update, please contact any of the lawyers listed below or your regular Davis Polk contact.

Donald S. Bernstein 212 450
Timothy Graulich 212 450
Marshall S. Huebner 212 450 4099
Benjamin S. Kaminetzky212 450
Elliot Moskowitz212 450
Damian S. Schaible 212 450
Darren S. Klein 212 450 4725
Brian M. Resnick 212 450 4213


Notice: This is a summary that we believe may be of interest to you for general information. It is not a full analysis of the matters presented and should not be relied upon as legal advice. If you would rather not receive these memoranda, please respond to this email and indicate that you would like to be removed from our distribution list. If you have any questions about the matters covered in this publication, the names and office locations of all of our partners appear on our website,
© 2010 Davis Polk & Wardwell LLP