TOUSA Fraudulent Transfer Decision Reversed by District Court


Reversing a controversial decision and judgment of the bankruptcy court, the United States District Court for the Southern District of Florida has held that a group of lenders who received payment in settlement of their defaulted debt from the proceeds of new loans secured by the assets of certain subsidiaries of TOUSA, Inc. which were not themselves liable on that debt, did not receive fraudulent transfers.

The district court found that because the TOUSA subsidiaries in question never controlled the loan proceeds from the new loans, the settlement payment to the lenders was not a direct transfer made by the subsidiaries, and, accordingly, the subsidiaries could not avoid the transfer. The subsidiaries also sought recovery based on avoidance of the liens they granted to secure the new loans. The district court found, however, that the subsidiaries received reasonably equivalent value for whatever minimal property interest they had in the new borrowing proceeds that were paid to the lenders.

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