![]() The Tribune LBO and Avoidance LitigationĪ year after its 2007 leveraged buyout in which public shareholders received over $8 billion in payments principally funded with new LBO debt, the Tribune Company-the storied newspaper and media company-filed for bankruptcy. However, Merit Management left undecided other potential arguments to broadly protect shareholder transfers under the safe harbor. Merit Management was initially viewed as significantly narrowing the scope of the Section 546(e) securities safe harbor. financial institutions,” in February 2018, the Supreme Court held that the safe harbor does not apply if the financial institution is merely an intermediary in the transaction. When bankruptcy follows a leveraged buyout or leveraged recapitalization, it is common for a creditors committee or bankruptcy trustee to sue shareholders to claw back merger consideration or other payments received for securities.Īlthough the “securities safe harbor” under Bankruptcy Code Section 546(e) shields from most avoidance actions 1 transfers that are settlement payments or payments related to a securities contract when those transfers are “made by or to (or for the benefit of). Similarly, the Bankruptcy Code permits avoidance of transfers that were “intentionally fraudulent” as to creditors. The Bankruptcy Code empowers bankruptcy trustees to avoid certain “constructively fraudulent” transfers made when an insolvent debtor receives less than reasonably equivalent value in exchange for transfers of cash or other assets. Fraudulent Transfer Claims and the Securities Safe Harbor ![]() Ropes & Gray serves as court-appointed liaison counsel for the approximately 5,000 public shareholder defendants in the Tribune case. The Second Circuit’s Tribune decision reaffirmed the vitality of the securities safe harbor in the context of LBO and leveraged recapitalization transactions notwithstanding the Supreme Court’s 2018 decision in Merit Management, a decision that was initially believed to have dramatically restricted the scope of the safe harbor. On April 19, 2021, the Supreme Court denied a petition for certiorari in the In re Tribune Company Fraudulent Conveyance Litigation (“Tribune”), preserving the safe harbor defense for LBOs established by the influential Second Circuit. Supreme Court ended a decade-long effort by distressed debt investors to undermine the safe harbor from avoidance actions set forth in Section 546(e) of the Bankruptcy Code. In a case with wide-reaching implications for the private equity industry, the U.S.
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