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The Fraudulent-transfer Risk in Asset Acquisitions and Investments with Financially Distressed Parties in the United States
The Fraudulent-transfer Risk in Asset Acquisitions and Investments with Financially Distressed Parties in the United States
First published in Law and Financial Markets Review, January 2010
By Josiah M. Daniel, III
Managers and investors should recognize that fraudulent transfer laws may apply to a variety of business transactions in the United States — ranging from the paying of corporate dividends either with borrowed money that, later, the company fails repay or at a time when the company is insolvent; purchasing assets from financially embarrassed firms; and withdrawals of investments and their profits from insolvent investment funds — and that the risk of incurring liability under such laws is particularly acute in times of economic downturn. When parties under financial pressure are willing to part with valuable assets for less-than-optimal consideration, well-funded firms will of course find opportunities to make attractive acquisitions or other deals. Moreover, the less well capitalized and managed investment funds often collapse in such times. Persons engaging in such transactions in the US should anticipate that debtors who file Chapter 11 cases under the U.S. Bankruptcy Code, their creditors, and bankruptcy trustees will apply hindsight to such transactions with a view toward seeking recovery in either federal or state courts from the non-debtor parties under either federal or state fraudulent transfer laws. Read the entire article here.
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