ABA Section of Business Law
The Business Lawyer Millennium Cumulative Index
Fraudulent Conveyance
Leveraged Buyouts and Fraudulent Transfers: Life After Gleneagles
David A. Murdoch, Linda D. Sartin, and Robert A. Zadek, 43(1): 1–26 (Nov. 1987)
As a result of the significant increase in leveraged buyout transactions over the past ten years, both sellers and lenders face a vast array of complex legal and financial questions as they plan their buyout strategy. This Article analyzes the risks of a possible fraudulent conveyance finding by the courts in connection with a leveraged buyout under the Bankruptcy Code, the Uniform Fraudulent Conveyance Act, and the Uniform Fraudulent Transfer Act. It focuses particularly on the Third Circuit's 1986 decision in the Gleneagles case. See United States v. Tabor Realty Corp., 803 F.2d 1288 (3d Cir. 1986), cert. denied sub nom. McClellan Realty Co. v. United States, 483 U.S. 1005 (1987). The Article also provides sellers and lenders with practical guidance in reducing or eliminating risks of voidability of leveraged buyouts as fraudulent conveyances.
Fraudulent Conveyance Concerns in Leveraged Buyout Lending
Matthew T. Kirby, Kathleen G. McGuinness, and Christopher N. Kandel, 43(1): 27–49 (Nov. 1987)
This Article reviews—from a lender's perspective—the applicability of and risks posed by fraudulent conveyance laws to leveraged buyouts. It discusses methods used to minimize those risks and sets in broader context issues raised by the Gleneagles case.
Waiving Subrogation Rights and Conjuring Up Demons in Response to Deprizio
Peter L. Borowitz, 45(4): 2151–68 (Aug. 1990)
In response to the insider guaranty preference risk involved in the Deprizio controversy, many commentators have proposed that lenders require any insider guarantor to waive its subrogation rights against the primary obligor. This Article argues that any such technical device will only exacerbate the substantive problem and create a fraudulent conveyance risk for the lender. The Article also discusses how an overly literal reading of the Deprizio decision has led some commentators to exaggerate its impact on secured financings and letter-of-credit transactions.
Wading "Upstream" in Leveraged Transactions: Traditional Guarantees v. "Net Worth" Guarantees
Brad R. Godshall and Robert A. Klyman, 46(2): 391–403 (Feb. 1991)
This Article addresses the advantages and disadvantages of "net worth" guarantees in leveraged transactions. Net worth guarantees were developed to attempt to avoid the fraudulent conveyance problems associated with traditional upstream guarantees in leveraged financing. However, net worth guarantees present significant, practical collection problems not present with traditional guarantees. Moreover, several recent appellate court opinions will be helpful in defending the general enforceability of traditional guarantees. Therefore, lenders may want to reexamine their use of net worth guarantees and reconsider traditional guarantees as the preferred choice of upstream guarantee.
Solution for Conflict of Laws Governing Fraudulent Transfers: Apply the Law That Was Enacted to Benefit the Creditors
Thomas H. Day, 48(3): 889–913 (May 1993)
This Article analyzes the choice of law for fraudulent transfers in the context of the purposes of fraudulent transfer law. The author concludes that, because fraudulent transfer laws are enacted to protect creditors from the disposition of a debtor's assets when the debtor is insolvent or undercapitalized, the law of the location of the creditors of the debtor should apply.
Don't Sound the Death Knell for Nonrecourse Lending Yet: A Proposal for Determining a Nonrecourse Lender's Standing under the Uniform Fraudulent Conveyance Act
John E. Barnes, 49(2): 669–88 (Feb. 1994)
The Article examines whether, and in what circumstances, a nonrecourse lender should have standing to challenge an insolvent debtor's conveyance of unencumbered assets as fraudulent. In 1992, the U.S. Court of Appeals for the Second Circuit strongly suggested that a nonrecourse lender may indeed be entitled in certain circumstances to enjoin a borrower's conveyance of unencumbered assets (such as cash) under the Uniform Fraudulent Conveyance Act. Not surprisingly, the decision has engendered considerable debate within the business, financial, and legal communities (and genuine alarm on the part of commercial borrowers). Although the subsequent remand decision by the federal district court has assuaged, to some extent, the concerns of borrowers, the Second Circuit's decision has raised issues that will continue to be a source of controversy as nonrecourse lenders seek to maximize their recovery from insolvent debtors. The author, however, believes that the controversy is something of a "tempest in a teapot." In this Article, he argues that a nonrecourse lender's assertion of standing under the UFCA may be analyzed by looking to fundamental legal concepts that should be familiar (and acceptable) to borrowers and lenders alike. In reliance on these concepts, the author proposes a four-part analytical approach for determining whether a nonrecourse lender has standing under the UFCA.
Defining "Unreasonably Small Capital" in Fraudulent Conveyance Cases: Ratio Analysis May Provide an Answer
Garrick A. Hollander, 49(3): 1185–1224 (May 1994)
This Article analyzes how the courts have defined "unreasonably small capital/assets." Thereafter, it discusses how unreasonably small capital/assets should be defined. In conclusion, it provides the reader with a method to determine when a company has unreasonably small capital and/or assets.
Breaking Up Is Hard to Do: Avoiding the Solvency-Related Pitfalls in Spinoff Transactions
Richard M. Cieri, Lyle G. Ganske, and Heather Lennox, 54(2): 533–605 (Feb. 1999)
This Article examines several of the legal traps that may accompany a typical spinoff transaction. Specifically, it discusses the issues surrounding officers' and directors' fiduciary duties and the spinning corporation's solvency, the possibility for a veil-piercing analysis, and the potential unwinding of the transaction as a fraudulent conveyance or illegal dividend. Throughout, the Article offers practical suggestions for the practitioner advising a client in a spinoff situation.
Working Paper: Best Practices for Debtors' Attorneys
Task Force on Attorney Discipline Best Practices Working Group, Ad Hoc Committee on Bankruptcy Court Structure and the Insolvency Processes, ABA Section of Business Law, 64(1): 79-152 (November 2008)
David A. Murdoch, Linda D. Sartin, and Robert A. Zadek, 43(1): 1–26 (Nov. 1987)
As a result of the significant increase in leveraged buyout transactions over the past ten years, both sellers and lenders face a vast array of complex legal and financial questions as they plan their buyout strategy. This Article analyzes the risks of a possible fraudulent conveyance finding by the courts in connection with a leveraged buyout under the Bankruptcy Code, the Uniform Fraudulent Conveyance Act, and the Uniform Fraudulent Transfer Act. It focuses particularly on the Third Circuit's 1986 decision in the Gleneagles case. See United States v. Tabor Realty Corp., 803 F.2d 1288 (3d Cir. 1986), cert. denied sub nom. McClellan Realty Co. v. United States, 483 U.S. 1005 (1987). The Article also provides sellers and lenders with practical guidance in reducing or eliminating risks of voidability of leveraged buyouts as fraudulent conveyances.
Fraudulent Conveyance Concerns in Leveraged Buyout Lending
Matthew T. Kirby, Kathleen G. McGuinness, and Christopher N. Kandel, 43(1): 27–49 (Nov. 1987)
This Article reviews—from a lender's perspective—the applicability of and risks posed by fraudulent conveyance laws to leveraged buyouts. It discusses methods used to minimize those risks and sets in broader context issues raised by the Gleneagles case.
Waiving Subrogation Rights and Conjuring Up Demons in Response to Deprizio
Peter L. Borowitz, 45(4): 2151–68 (Aug. 1990)
In response to the insider guaranty preference risk involved in the Deprizio controversy, many commentators have proposed that lenders require any insider guarantor to waive its subrogation rights against the primary obligor. This Article argues that any such technical device will only exacerbate the substantive problem and create a fraudulent conveyance risk for the lender. The Article also discusses how an overly literal reading of the Deprizio decision has led some commentators to exaggerate its impact on secured financings and letter-of-credit transactions.
Wading "Upstream" in Leveraged Transactions: Traditional Guarantees v. "Net Worth" Guarantees
Brad R. Godshall and Robert A. Klyman, 46(2): 391–403 (Feb. 1991)
This Article addresses the advantages and disadvantages of "net worth" guarantees in leveraged transactions. Net worth guarantees were developed to attempt to avoid the fraudulent conveyance problems associated with traditional upstream guarantees in leveraged financing. However, net worth guarantees present significant, practical collection problems not present with traditional guarantees. Moreover, several recent appellate court opinions will be helpful in defending the general enforceability of traditional guarantees. Therefore, lenders may want to reexamine their use of net worth guarantees and reconsider traditional guarantees as the preferred choice of upstream guarantee.
Solution for Conflict of Laws Governing Fraudulent Transfers: Apply the Law That Was Enacted to Benefit the Creditors
Thomas H. Day, 48(3): 889–913 (May 1993)
This Article analyzes the choice of law for fraudulent transfers in the context of the purposes of fraudulent transfer law. The author concludes that, because fraudulent transfer laws are enacted to protect creditors from the disposition of a debtor's assets when the debtor is insolvent or undercapitalized, the law of the location of the creditors of the debtor should apply.
Don't Sound the Death Knell for Nonrecourse Lending Yet: A Proposal for Determining a Nonrecourse Lender's Standing under the Uniform Fraudulent Conveyance Act
John E. Barnes, 49(2): 669–88 (Feb. 1994)
The Article examines whether, and in what circumstances, a nonrecourse lender should have standing to challenge an insolvent debtor's conveyance of unencumbered assets as fraudulent. In 1992, the U.S. Court of Appeals for the Second Circuit strongly suggested that a nonrecourse lender may indeed be entitled in certain circumstances to enjoin a borrower's conveyance of unencumbered assets (such as cash) under the Uniform Fraudulent Conveyance Act. Not surprisingly, the decision has engendered considerable debate within the business, financial, and legal communities (and genuine alarm on the part of commercial borrowers). Although the subsequent remand decision by the federal district court has assuaged, to some extent, the concerns of borrowers, the Second Circuit's decision has raised issues that will continue to be a source of controversy as nonrecourse lenders seek to maximize their recovery from insolvent debtors. The author, however, believes that the controversy is something of a "tempest in a teapot." In this Article, he argues that a nonrecourse lender's assertion of standing under the UFCA may be analyzed by looking to fundamental legal concepts that should be familiar (and acceptable) to borrowers and lenders alike. In reliance on these concepts, the author proposes a four-part analytical approach for determining whether a nonrecourse lender has standing under the UFCA.
Defining "Unreasonably Small Capital" in Fraudulent Conveyance Cases: Ratio Analysis May Provide an Answer
Garrick A. Hollander, 49(3): 1185–1224 (May 1994)
This Article analyzes how the courts have defined "unreasonably small capital/assets." Thereafter, it discusses how unreasonably small capital/assets should be defined. In conclusion, it provides the reader with a method to determine when a company has unreasonably small capital and/or assets.
Breaking Up Is Hard to Do: Avoiding the Solvency-Related Pitfalls in Spinoff Transactions
Richard M. Cieri, Lyle G. Ganske, and Heather Lennox, 54(2): 533–605 (Feb. 1999)
This Article examines several of the legal traps that may accompany a typical spinoff transaction. Specifically, it discusses the issues surrounding officers' and directors' fiduciary duties and the spinning corporation's solvency, the possibility for a veil-piercing analysis, and the potential unwinding of the transaction as a fraudulent conveyance or illegal dividend. Throughout, the Article offers practical suggestions for the practitioner advising a client in a spinoff situation.
Working Paper: Best Practices for Debtors' Attorneys
Task Force on Attorney Discipline Best Practices Working Group, Ad Hoc Committee on Bankruptcy Court Structure and the Insolvency Processes, ABA Section of Business Law, 64(1): 79-152 (November 2008)
