“Fraudulent transfer” under 11 USC 548 is a bit of a misnomer. Subsection (a)(1) explains what makes a transfer “fraudulent.” One option, subparagraph (A), requires intent to mess over creditors. But subparagraph (B) does not require any ill intent at all—it only requires that the debtor “received less than a reasonably equivalent value in exchange” for the transfer (check), and that one of four criteria concerning the debtor’s financial condition is met (e.g., that the debtor “was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital”). The underlying idea is that if a company that is insolvent, on the brink of insolvency, etc. has no business handing out money to favored entities or persons in preference to the claims of its creditors.
For the curious, the shorter “preference” period is more about favoring creditors close to the bankruptcy filing date. So, e.g., if I owe my friend and the bank 100K each, I can’t make a big payment to my friend and then file for bankruptcy, because that violates the bankruptcy norm of treating like creditors alike.
A trustee can also seek clawbacks under 11 USC 544(b) if allowed under applicable state law, which can sometimes look back up to six years.
Of course, the relevance of this discussion is dependent on whether a US bankruptcy court would apply US law if an FTX debtor filed in US bankruptcy court (for which the standards are low—https://www.skadden.com/insights/publications/2021/06/quarterly-insights/international-companies-turn-to-us-restructurings) or sought ancillary proceedings under Chapter 15 (which I know very little about). If the target of a clawback isn’t in the US, there is also a question of whether the target is effectively beyond the reach of a US court order.
Complicated stuff, and I’m not qualified to offer an opinion beyond “consult with your lawyer if you think you have exposure.”
“Fraudulent transfer” under 11 USC 548 is a bit of a misnomer. Subsection (a)(1) explains what makes a transfer “fraudulent.” One option, subparagraph (A), requires intent to mess over creditors. But subparagraph (B) does not require any ill intent at all—it only requires that the debtor “received less than a reasonably equivalent value in exchange” for the transfer (check), and that one of four criteria concerning the debtor’s financial condition is met (e.g., that the debtor “was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital”). The underlying idea is that if a company that is insolvent, on the brink of insolvency, etc. has no business handing out money to favored entities or persons in preference to the claims of its creditors.
For the curious, the shorter “preference” period is more about favoring creditors close to the bankruptcy filing date. So, e.g., if I owe my friend and the bank 100K each, I can’t make a big payment to my friend and then file for bankruptcy, because that violates the bankruptcy norm of treating like creditors alike.
A trustee can also seek clawbacks under 11 USC 544(b) if allowed under applicable state law, which can sometimes look back up to six years.
Of course, the relevance of this discussion is dependent on whether a US bankruptcy court would apply US law if an FTX debtor filed in US bankruptcy court (for which the standards are low—https://www.skadden.com/insights/publications/2021/06/quarterly-insights/international-companies-turn-to-us-restructurings) or sought ancillary proceedings under Chapter 15 (which I know very little about). If the target of a clawback isn’t in the US, there is also a question of whether the target is effectively beyond the reach of a US court order.
Complicated stuff, and I’m not qualified to offer an opinion beyond “consult with your lawyer if you think you have exposure.”