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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Fraudulent Transfer Claims In Claw Back Litigation

By Melissa Davis and Grace E. Robson
May 01, 2021

While the number of bankruptcy cases has been trending down over the past year, and we have seen some positive economic activity, there are also predictions that long-term negative impacts could result in an increasing number of corporate restructurings and bankruptcy filings.

A common source of recovery for creditors in bankruptcy cases are litigation claims brought by a bankruptcy estate to claw back what is known in the bankruptcy world as "preferential" and "fraudulent" transfers. "Valuation," "solvency" and "insolvency" are commonly used terms in litigation stemming from bankruptcy cases involving these claims. This article focuses on the basics of fraudulent transfer claims and solvency analysis in the context of lawsuits where a plaintiff is seeking to recover payments made prior to the bankruptcy case being commenced, sometimes referred to as "claw back" litigation.

In connection with such litigation, plaintiffs are often required to prove that the debtor was insolvent at the time the transfer was made. Insolvency is an important element of a plaintiff's case, as it goes to the avoidability of transactions as either "preferential" or "fraudulent" (fraudulent in this context refers to circumstances where the recipient did not provide the debtor with reasonably equivalent value in exchange for the transfer).

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