Avoidance actions under the US Bankruptcy Code
Produced in partnership with Julie Lanz of Skadden Arps Slate Meagher & Flom LLP
Avoidance actions under the US Bankruptcy Code

The following Restructuring & Insolvency guidance note Produced in partnership with Julie Lanz of Skadden Arps Slate Meagher & Flom LLP provides comprehensive and up to date legal information covering:

  • Avoidance actions under the US Bankruptcy Code
  • Overview of avoidance actions
  • Fraudulent transfers
  • Affiliate transactions and value
  • Preferences
  • Remedies for avoided transfers
  • Additional defences to avoidance actions

Overview of avoidance actions

The US Bankruptcy Code provides a debtor with rights to avoid certain transfers of property made by the debtor to third parties prior to the bankruptcy filing. The purpose of these avoidance powers is to permit the recovery of the transferred property for the benefit of the debtor’s estate and creditors.

The US Bankruptcy Code defines ‘transfer’ broadly. Among other things, this definition encompasses payments, the creation of liens, and ‘each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property...’ (11 U.S.C. § 101(54)).

A debtor’s avoidance powers extend to several types of (but not all) transfers, with the two most common types of transfers subject to avoidance being fraudulent transfers and preferences (each described below).

To recover property from a transfer subject to avoidance, the debtor must bring a lawsuit, known as an ‘avoidance action’, against the transferee. Avoidance actions are generally overseen by the bankruptcy court, and transferees have the opportunity to defend against the debtor’s avoidance claims.

  1. an avoidance action may not be commenced after the earlier of (a) the time the bankruptcy case is closed or dismissed and (b) the later of (i) two years after the bankruptcy filing and (ii) one year after the appointment of a trustee, if