Two streams of payments to shareholders in a leveraged buyout (LBO), totaling $4 million (Certificate Transfers) and $1.101 billion (DTC Transfers), made through a paying agent bank, were "safe harbored under [Bankruptcy Code §546(e), but "Payroll Transfers," totaling $78 million, made to the debtor's "directors, officers and employee shareholders through its payroll program … [were] not so shielded," from fraudulent transfer claims, held the Second Circuit in a split decision.
Split Second Circuit Narrows Bankruptcy Code's Settlement Payment Safe Harbor
The majority was sensibly concerned with the possible structuring of leveraged buyouts by artful counsel who would use a financial institution as a "mere conduit" to exploit the Code's safe harbor.
By
Michael L. Cook
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