In Ebner v. Kaiser (In re Kaiser), the U.S. Bankruptcy Court for the Northern District of Illinois allowed a bankruptcy trustee to employ the 10-year look-back period, available to the Internal Revenue Service (IRS) under the Internal Revenue Code (IRC), in seeking to recover pre-petition fraudulent transfers pursuant to 11 U.S.C § 544 (b). This allowed the trustee to escape the effect of Illinois’s generally applicable four-year look-back period for the recovery of fraudu¬lent transfers under its version of the Uniform Fraudulent Transfer Act (UFTA). The decision also appears to be the second explicit rejection, follow¬ing Tronox Inc. v. Kerr McGee Corp. (In re Tronox Inc.), of the Fifth Circuit’s contrary holding in MC Asset Recovery LLC v. Commerzbank AG (In re Mirant Corp.), which concluded that the Federal Debt Collection Procedures Act (FDCPA) was not “applicable law” as that phrase is employed in § 544 (b) (1). The Kaiser and Tronox decisions, and the contrary authorities that they reject, evidence continued disagreement over whether bankruptcy trustees or debtors in possession (DIPs) may co-opt the sometimes-advantageous look-back periods available to the federal government when seeking to recover fraudulent transfers.

Section 544 (b) (1) and Selection of a Triggering Creditor -

Section 548 allows trustees to avoid actually and constructively fraudulent transfers occurring within the two years preceding a debtor’s filing of a bankruptcy petition. Section 544(b)(1) also confers authority upon trustees to avoid “any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502.” Stated otherwise, § 544(b)(1) “enables a trustee to do in a bankruptcy proceeding what a creditor would have been able to do outside of bankruptcy — except the trustee will recover the property for the benefit of the estate.”. This component of a trustee’s so-called “strong arm” powers is commonly used to expand § 548’s two-year look-back period to the often more generous look-back periods available under states’ fraudulent transfer laws.

Originally published in the ABI Journal, Vol. XXXIV, No. 3, March 2015.