Buyer Beware: Third Circuit Confirms Claims are Subject to Disallowance Despite Sale to Third Party

more+
less-

The Third Circuit in In re KB Toys, Inc. recently affirmed a decision of the Delaware District Court, holding that trade claims are subject to disallowance under section 502(d) of the Bankruptcy Code despite their subsequent sale to a third party. This case is of particular interest to investors in distressed debt.

Generally, section 502(d) of the Bankruptcy Code provides that a bankruptcy court shall disallow “any claim of an entity” that is the transferee of an avoidable transfer (such as a preference or fraudulent conveyance), unless the property subject to avoidance is returned to the estate. In KB Toys, the Third Circuit considered whether a trade claim that is subject to disallowance under section 502(d) with respect to the original claimant is also disallowable in the hands of a subsequent transferee.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP | Attorney Advertising

Written by:

more+
less-

Morrison & Foerster LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
×
Loading...
×
×