2014 Commercial Law Developments, Prepared by the Commercial Transactions Committee for the Business Law Section 2014 Annual Report
IV. Fraudulent Transfers

  • Priestley v. Panmedix Inc., 2014 U.S. Dist. LEXIS 60833 (S.D.N.Y. 2014) - A grant of a security interest could be a fraudulent transfer where the benefits received by the debtor were disproportionately small.
  • In re Equipment Acquisition Resources, Inc., 742 F.3d 743 (7th Cir. 2014) - [Illinois fraudulent transfer action per BK Section 544 to recover tax payment from IRS - concludes can't be done.]
  • In re Lyondell Chemical, 503 B.R. 348 (Bkrtcy. S.D.N.Y. 2014) - Bankruptcy Code § 546(e) safe harbor does not bar state law fraudulent transfer claims.
  • Priestley v. Panmedix Inc., 2014 WL 1760049 (S.D.N.Y. 2014) - [Although the security interest of a lender who failed to file a continuation statement before obtaining a judgment against the debtor was junior to the security interest granted postjudgment by the debtor to a group of 20 existing creditors - mostly insiders - after the debtor learned of the lapse of perfection, the senior security interest was an avoidable constructively fraudulent transfer because the existing creditors' promise to forebear for four months was not fair consideration for the transfer of the security interest and because the transfer gave preferential treatment to controlling shareholders. The transfer was also an avoidable transfer made with intent to hinder, delay or defraud because it was made to controlling shareholders, unusual, for inadequate consideration, made with knowledge of the lender's unpaid claim and judgment, and to allow the debtor to retain use of the collateral.]
  • Phillips v. Phillips, 2014 WL 902683 (Minn. Ct. App. 2014) - Although the enforcement of a security interest is insulated from avoidance under Uniform Fraudulent Transfer Act § 8(e), the grant of a security interest to an insider on account of an antecedent debt while the debtor is insolvent can be an avoidable fraudulent transfer under § 5(b), if the insider had reasonable cause to know of the debtor's insolvency.
  • Lake Treasure Holdings, Ltd. v. Foundry Hill GP LLC, 2014 WL 5192179 (Del. Ch. Ct. 2014) - An owner of software transferred the software to an entity controlled by a long-time friend of the transferor. The transferee paid for the software with loan proceeds representing a small fraction of what the owner thought the software was worth. The loan was secured by a security interest in the software. The transferor then amicably surrendered the software to the secured party. The original transfer was an avoidable fraudulent transfer made with actual intent to hinder, delay or defraud the investors who were seeking to dissolve the debtor. Although a transfer would not be avoidable against a person who took in good faith and for a reasonably equivalent value, the secured party did not act in good faith because it conspired with the owner to circumvent the owner's lack of authority to sell the software and because it did not give reasonably equivalent value.
  • CNH Capital America LLC v. Hunt Tractor, Inc., 568 F. App'x 461 (6th Cir. 2014) - A secured party could have a conversion claim against a minority shareholder of the corporate debtor and the father-in-law of principal owner. The minority shareholder's guarantee of unsecured debt was discharged when the debtor sold the collateral and used the proceeds to pay that debt. The conversion claim would depend on whether the guarantor exercised dominion and control over the proceeds of the collateral. The secured party did not have a fraudulent transfer claim because recovery of a fraudulent transfer is available only from a transferor or transferee, not a third party who benefitted from the transfer. [copy to secured transactions]
  • In re Coudert Bros (2d Cir. Sept 2, 2014) - Unfinished hourly business is not an asset of a dissolved law firm
  • In re Thelen III (NY Ct App July 1, 2014)) - Status of unfinished business as "asset" of closed law firm.
  • Lyondell (Bankruptcy SDNY Jan 14 2014): Bankruptcy Code § 546(e) does not preempt state fraudulent transfer law.
  • Trustco Bank v. Mathews, _ A.2d _ (Del Ch 2015) - Court determines that place of harm determines law applicable to a fraudulent transfer.

V. Lender and Borrower Liability / Table of Contents