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May 22, 2012

TOUSA: 11th Circuit Affirms Bankruptcy Court’s Decision That Subsidiaries Pledging Assets To Repay Parent Company’s Debt Did Not Receive “Reasonably Equivalent Value”

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A much discussed decision interpreting the fraudulent transfer provisions of the Bankruptcy Code has been revived. In In re TOUSA, Inc., the Eleventh Circuit Court of Appeals reversed a district court decision and affirmed portions of the original bankruptcy court holding that liens granted by TOUSA’s subsidiaries to secure their guarantees of new financing to enable their parent company to pay off its existing lenders were avoidable as fraudulent transfers. The Eleventh Circuit also affirmed that the existing lenders were the entities “for whose benefit” the TOUSA subsidiaries granted security interests to the new lenders. This appeal did not address the bankruptcy court’s controversial statements that “savings clauses” in guarantees are invalid. This appeal also left open the appropriate remedies to be imposed on the lenders who received the fraudulent conveyance, which the district court will consider on remand.

View full memo, "TOUSA: 11th Circuit Affirms Bankruptcy Court’s Decision That Subsidiaries Pledging Assets To Repay Parent Company’s Debt Did Not Receive 'Reasonably Equivalent Value'"

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