Second Circuit holds that Bankruptcy Code preempts creditors’ state law constructive fraud claims.
On March 29, 2016, the Second Circuit issued its opinion in In re Tribune Company Fraudulent Conveyance Litig., unanimously holding that creditors’ state law, constructive fraudulent transfer (SLCFT) claims were preempted and extinguished by the Bankruptcy Code. The case, which involved creditors’ attempts to claw back payments to former shareholders of Tribune Media Company (Tribune) in connection with a leveraged buyout (LBO), settled a conflict among the Second Circuit’s lower courts regarding the scope of the safe harbor under section 546(e) of the Bankruptcy Code. The decision in Tribune is the latest in a line of cases that have expanded the scope of section 546(e) and importantly, the holding effectively marks the end of the line for creditors seeking to circumvent the safe harbors under section 546 and assert their own SLCFT claims.
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