Safe Harbor Defense Bars Creditors’ State Law Fraudulent Transfer Claims

Creditors of a Chapter 11 debtor asserting “state law, constructive fraudulent [transfer] claims … are preempted by Bankruptcy Code Section 546(e),” held the U.S. Court of Appeals for the Second Circuit on March 29, 2016. In re Tribune Company Fraudulent Conveyance Litigation, 2016 WL 1226871, *1 (2d Cir. Mar. 29, 2016) (as corrected). Section 546(e), the so-called “safe harbor” defense, “shields from avoidance proceedings brought by a bankruptcy trustee transfers by or to financial intermediaries effectuating settlement payments in securities transactions or made in connection with a securities contract, except through an intentional fraudulent [transfer] claim.” Id. In this article, of counsel Michael Cook examines the Second Circuit’s decision.