Bankruptcy Update

Upstream Guaranties, Security Interests Ruled Fraudulent Transfers

, The Legal Intelligencer

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The lenders in In re Tousa all filed appeals to the U.S. District Court for the Southern District of Florida. The new lenders' appeal was stayed pending the outcome of the Transeastern lenders' appeal. In a sweeping and highly critical 113-page opinion issued in February, the District Court reversed the Bankruptcy Court on nearly every finding and conclusion and held the Transeastern lenders (1) could not be compelled to disgorge the funds paid and (2) were not liable as entities for whose benefit the conveying subsidiaries transferred the liens to the new lenders. In particular, the District Court noted that the Bankruptcy Court adopted virtually unchanged the proposed draft finding and conclusions submitted by the committee.

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