Introduction

Creditors of an insolvent debtor may avoid certain transfers as fraudulent conveyances under state or federal law. A fraudulent conveyance is a transfer made without the transferor receiving adequate consideration and which satisfies one of three insolvency conditions: 1) the transferor was insolvent when the transfer was made; 2) the transferor was rendered insolvent by the transfer; or 3) the transferor was left with unreasonably small capital to carry on his/her or its business.[1]
Continue Reading S.D.N.Y. Bankruptcy Court Holds that Allegedly Fraudulent Conveyances are Safe Harbored Under Section 546(e) and Provides a New Avenue of Defense

The general rule is that when a corporation or other business entity buys the assets of another entity, it does not assume the liabilities of the seller. But in New Nello Operating Co., LLC v. CompressAir, 19A-CC-603 (Ind. Ct. App. March 2, 2020), the court applied the de facto merger exception and held the buyer company (“New Nello”), which had acquired the assets through a foreclosure under the Uniform Commercial Code (“UCC”), responsible for the seller’s (“Old Nello”) debt. The facts illustrate why the court imposed liability on New Nello and provide guidance on how to avoid this result.
Continue Reading Distress Buyer in UCC Foreclosure Sale Held Liable for Seller’s Debts Under De Facto Merger Doctrine

On January 13, 2020, the Supreme Court denied petitions for writ of certiorari on the question of whether payments on municipal bonds secured by special revenues are required during the issuer’s bankruptcy. Special revenue bonds are paid from pledged revenues generated from a specific activity. The case arose because after the Puerto Rico Highway and Transportation Agency (PRHTA) commenced its municipal reorganization case in 2017, it refused to make a July 2017 payment of $219 million, arguing that the automatic stay of the Bankruptcy Code precluded such payments. That dispute followed actions by Puerto Rico’s governor and legislature in 2015 and 2016, in which they had diverted PRHTA’s special revenues, which consisted of tolls, motor fuels, taxes and other transportation-related revenues, for payment of the Commonwealth’s other obligations.
Continue Reading Bond Market Shaken (Not Stirred) As Supreme Court Declines To Hear Puerto Rico Municipal Bonds Dispute