What happens if the money was donated to a charity that is subject to clawbacks, but the charity then spent the money? Do they try to claw it back from the suppliers or employees or whoever? Can it trigger a cascade of bankruptcies?
Employers, suppliers, etc. should be safe. Although the underlying law is complex, at a high level a clawback is possible when (as Wikipedia describes “constructive fraud”) the transfer “took place for less than reasonably equivalent value at a time when the debtor was in a distressed financial condition.” If I sell my labor (or widgets) to Charity X and receive a fair market wage or price in return, then the transfer took place for reasonably equivalent value and all creditors can generally pound sand.
It can get more complex, though. Let’s say I am a supplier of products to a charity and let them pay me 90 days after delivery, or maybe they are late in making payments. I’m now a creditor, and if the charity is insolvent, then paying back my loan could lead to a clawback because it’s seen as the charity favoring me over other creditors. That’s why vendors often demand cash on delivery to supply financially distressed companies. It’s possible for payments to employees to become problematic—if you’re insolvent and hand out certain bonuses, you can expect some extra scrutiny as to whether the business received reasonably equivalent value in exchange.
To underscore the complexity this stuff can reach, Irving Picard and his firm have spent something like $1 billion in legal fees and over a decade going after money for net losers in the Madoff scheme using similar theories.
What happens if the money was donated to a charity that is subject to clawbacks, but the charity then spent the money? Do they try to claw it back from the suppliers or employees or whoever? Can it trigger a cascade of bankruptcies?
Employers, suppliers, etc. should be safe. Although the underlying law is complex, at a high level a clawback is possible when (as Wikipedia describes “constructive fraud”) the transfer “took place for less than reasonably equivalent value at a time when the debtor was in a distressed financial condition.” If I sell my labor (or widgets) to Charity X and receive a fair market wage or price in return, then the transfer took place for reasonably equivalent value and all creditors can generally pound sand.
It can get more complex, though. Let’s say I am a supplier of products to a charity and let them pay me 90 days after delivery, or maybe they are late in making payments. I’m now a creditor, and if the charity is insolvent, then paying back my loan could lead to a clawback because it’s seen as the charity favoring me over other creditors. That’s why vendors often demand cash on delivery to supply financially distressed companies. It’s possible for payments to employees to become problematic—if you’re insolvent and hand out certain bonuses, you can expect some extra scrutiny as to whether the business received reasonably equivalent value in exchange.
To underscore the complexity this stuff can reach, Irving Picard and his firm have spent something like $1 billion in legal fees and over a decade going after money for net losers in the Madoff scheme using similar theories.
Jesus. I hope it doesn’t come to that in this case.