INSOLVENCY AND RESTRUCTURING UPDATE

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 4092donald.bernstein@davispolk.com
Timothy Graulich 212 450 4639timothy.graulich@davispolk.com
Marshall S. Huebner 212 450 4099 marshall.huebner@davispolk.com
Benjamin S. Kaminetzky212 450 4259ben.kaminetzky@davispolk.com
Elliot Moskowitz212 450 4241elliot.moskowitz@davispolk.com
Damian S. Schaible 212 450 4580damian.schaible@davispolk.com
Darren S. Klein 212 450 4725 darren.klein@davispolk.com
Brian M. Resnick 212 450 4213 brian.resnick@davispolk.com

 

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