Abstract
The economic optimism and greed of the last decade and the resulting leveraged buyouts (LBO) placed a number of companies in dire financial situations. While management and shareholders reaped the benefits of LBOs, unsecured creditors were denied their share of the largess. Frequently, transfers to shareholders and management siphoned out so much cash that even if the company was not insolvent at the time of a stock redemption, it was left with insufficient capital to operate as a going-concern. Under the Bankruptcy Code, the trustee or debtor in possession may seek to recover fraudulent transfers under Section 548(a), under which the trustee may avoid transfers that were made with intent to defraud or for which less than a reasonably equivalent value was received at a time when the debtor was insolvent or the transfer caused the debtor to become insolvent. Section 546(e) is likely to present a defense to claims brought under Section 544 and Section 548 that may be very hard to overcome and may preclude the recovery.