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Bankruptcy Litigation

Second Circuit Insulates Innocent Friend from Corporate Debtor’s Fraudulent Transfer Liability

The defendant “was a ‘mere conduit’ of [a] fraudulent transfer and cannot be liable to the bankruptcy estate for funds she never knew about,” held the U.S. Court of Appeals for the Second Circuit in In re BICOM N.Y., LLC.

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The defendant “was a ‘mere conduit’ of [a] fraudulent transfer and cannot be liable to the bankruptcy estate for funds she never knew about,” held the U.S. Court of Appeals for the Second Circuit on May 5, 2022. In re BICOM N.Y., LLC, 2022 WL 1419997 (2d Cir. May 5, 2022). Affirming the lower courts’ granting of summary judgement to the defendant transferee, the court refused to “equate … mere receipt [of corporate debtor funds] with liability,” reasoning that “mere conduits” of fraudulent transfers are not “initial transferees” under Bankruptcy Code §550(a)(1) (“trustee may recover” fraudulently transferred property from “the initial transferee of such transfer”).

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