Equity security holders[2] or investors [3] (“Equity Holders”) in debtor entities are usually subordinated to creditors’ claims in bankruptcy cases.[4] This need not always be the case. Two conditions exist where Equity Holders’ claims may be equal or superior to general unsecured creditors’ claims. The first are claims based on “fraudulent retention” (“Fraudulent Retention Claims”). The second are claims based on debtors’ post-petition interfering with Equity Holder’s rights to sell their investment, to benefit the debtors’ reorganization effort (“Freeze Claims”).Read More
The ability to “clawback”[2] fraudulent transfers is an ancient,[3] but reliable, tool in bankruptcy trustees’ armories. Fraudulent transfers have two classes: a.) intentional; and b.) constructive. Intentional fraudulent transfers are “yes, I intended to hinder, delay and/or defraud my creditors.” Constructive fraudulent transfers don’t involve intent. Instead, they are transfers where the circumstances cloud the transfers’ economic bona fides (eg. “Jack, you traded the cow for some beans. Are you mashugah[4]? Go to your room! My creditors will go nuts.”). It doesn’t mean you’re a fraud; just not the best…Read More
Bankruptcy cases frequently have transfers of the bankruptcy estate’s property through court- approved sales.[2] Sometimes those sales are challenged.[3] Often those challenges are overruled.[4] Sometimes the order approving the sale is appealed...Read More
