Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

The Curious Case of Extraterritoriality and Fraudulent Transfer Under the Bankruptcy Code

By Rick Antonoff
July 01, 2019

The fraudulent transfer provisions of the Bankruptcy Code give trustees broad power to avoid transfers of property that were made by the debtor before the bankruptcy case if either: 1) the debtor transferred the property with actual intent to hinder, delay or defraud creditors; or 2) the debtor received less than reasonably equivalent value in exchange for the transferred property. 11 U.S.C. §548(a)(1). If the transfer is avoidable, then a separate provision of the Bankruptcy Code gives trustees power to recover the property from the initial transferee or any subsequent transferee who received the property directly or indirectly from the initial transferee. 11 U.S.C. §550(a). In cases where trustees seek to recover property from subsequent transferees located outside the United States who received the property from transferors also located outside the United States, the question arises whether the Bankruptcy Code's fraudulent transfer recovery provision reaches that transaction — in other words, whether §550(a) applies extraterritorially to allow trustees to recover property from foreign subsequent transferees.

The U.S. Court of Appeals for the Second Circuit recently issued an opinion in In re Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities, Case No. 17-2992 (2d Cir. Feb. 25, 2019) (BLMIS) concluding that trustees can pursue recovery from foreign subsequent transferees who received property in transactions that occurred entirely outside the United States. The opinion reversed two lower court rulings and arguably conflicts with Supreme Court precedent on extraterritoriality of U.S. legislation.

Extraterritoriality and Fraudulent Transfer

Courts are divided on the issue of whether the fraudulent transfer recovery provision applies extraterritorially. In re CIL Ltd., 582 B.R. 46, 92-93 (Bankr. S.D.N.Y. 2018) (collecting cases); see also, R. Antonoff et al., New York Bankruptcy Courts Grapple With Territorial Limits of U.S. Bankruptcy Code, Pratt's J. Bankr. L. 185 (June 2018). Most cases hold that it does not apply extraterritorially. See, In re CIL Ltd., 582 B.R. at 95-96. Other cases allowed recovery from foreign subsequent transferees in certain circumstances. See, In re Arcapita Bank B.S.C.(c), 575 B.R. 329 (Bankr. S.D.N.Y. 2017); In re Lyondell Chem. Co., 543 B.R. 127 (Bankr. S.D.N.Y. 2016). The rulings are generally based upon two principal doctrines: 1) The presumption against extraterritoriality; and 2) international comity.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Why So Many Great Lawyers Stink at Business Development and What Law Firms Are Doing About It Image

Why is it that those who are best skilled at advocating for others are ill-equipped at advocating for their own skills and what to do about it?

Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

A Lawyer's System for Active Reading Image

Active reading comprises many daily tasks lawyers engage in, including highlighting, annotating, note taking, comparing and searching texts. It demands more than flipping or turning pages.

The DOJ's Corporate Enforcement Policy: One Year Later Image

The DOJ's Criminal Division issued three declinations since the issuance of the revised CEP a year ago. Review of these cases gives insight into DOJ's implementation of the new policy in practice.

Blockchain Domains: New Developments for Brand Owners Image

Blockchain domain names offer decentralized alternatives to traditional DNS-based domain names, promising enhanced security, privacy and censorship resistance. However, these benefits come with significant challenges, particularly for brand owners seeking to protect their trademarks in these new digital spaces.