Bankruptcy Court Addresses Standard For Recovery Of An Alleged Fraudulent Transfer From A Subsequent Transferee
The Bankruptcy Code gives a trustee powers to avoid certain pre-bankruptcy transfers of the debtor’s property to other entities. For example, a trustee can avoid transfers made with the intent to impair the ability of creditors to collect on their debts. 11 U.S.C. § 548(a)(1)(A). The Code gives the trustee the power to recover the transferred property from the initial recipient, and also from subsequent recipients, “to the extent the transfer is avoided.” 11 U.S.C. § 550(a). Courts have split on whether this language requires a trustee to get a judgment avoiding a transfer prior to recovering from a subsequent transferee, or whether a trustee can simply show that the transfer is avoidable as part of the action against the subsequent transferee. A related question, however, concerns what happens when a trustee has gotten a judgment avoiding a transfer, and then seeks to recover from subsequent transferees. Can those transferees challenge whether the original transfer was avoidable? This question is the central issue in a recent decision from the United States Bankruptcy Court for the Southern District of Florida. Yip v. Google LLC (In re Student Aid Ctr., Inc.), Adv. Proc. No. 18-1493, 2019 Bankr. LEXIS 3310 (Bankr. S.D. Fla. Oct. 22, 2019).