The Supreme Court, in Merit Management Group, LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018), recently resolved a circuit split in the interpretation of the Bankruptcy Code’s safe harbor provision. The Court held that section 546(e) does not protect transfers made through a financial institution to a third party regardless of whether the financial institution had a beneficial interest in the transferred property. Instead, “the only relevant transfer for purposes of the safe harbor is the transfer that the trustee seeks to avoid.” This decision will have implications for companies pursing leveraged buyout transactions.
On February 27, 2018, the U.S. Supreme Court resolved a circuit split under the Bankruptcy Code and determined that where funds passed through financial institutions acting as payment conduits, where the ultimate transfer sought to be avoided was not the type of transaction protected by the safe harbor provisions of the Bankruptcy Code, the safe harbor provisions of Bankruptcy Code Section 546(e), shielding transfers through financial institutions from avoidance actions by bankruptcy trustees, was inapplicable.
The Supreme Court found that prior circuit decisions applying the safe harbor simply because financial institutions were intermediaries in the transfer is not consistent with the language or intent of the safe harbor provisions. Continue Reading Supreme Court Narrows Scope of Safe Harbor Exception for Securities Clawbacks