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Eleventh Circuit Reviews Creditor Rights Amid Fraudulent Transfer Allegations in Corporate Bankruptcy Case

In late 2015, the U.S. Court of Appeals for the 11th Circuit considered an interesting case involving debtor and creditor rights amid Chapter 11 bankruptcy proceedings. The case involved a parent company, its subsidiary and several creditors claiming that the insolvent subsidiary was dabbling in fraudulent transfers of valuable assets for purposes of reducing exposure to liquidation under the Chapter 11 proceedings.

By contrast, the debtor asserted that it did no such thing and any transfers were valueless under the U.S. Bankruptcy Code. This blog takes a closer look at the details of that case.  Please contact the Law Office of Michael L. Feinstein today if you are a creditor in need of assistance in recovering valuable assets.

Background of the Case

The case at hand, PSN Liquidating Trust v. Intelsat Corp., involves a television station, its parent company and a satellite service provider. In essence, the parent company (“PSNI”) entered into a contract with the satellite company known as “Intelsat.” Pursuant to the contract, PSNI agreed to pay Intelsat for satellite services to broadcast its wholly-owned subsidiary channel known as PSN USA, Inc. As part of its general policy, the parent company required PSN USA to foot the bill for all of its production costs, including the satellite service fees, which were actually PSNI’s obligation to pay.

After some time, PSN USA entered into Chapter 11 bankruptcy proceedings. During the initial proceedings, a liquidating trust (“PSN Liquidating Trust”) was set up to handle the liquidation of the debtor, as well as prosecute pending actions against the debtor for avoidance and recovery.

At the heart of the matter, the PSN Liquidating Trust filed an action against Intelsat seeking to void any and all payments made by PSN USA to Intelsat based on the premise that the debtor did not receive any “reasonably equivalent value” in exchange for the payments – namely, because the debtor was not a party to the original satellite services agreement and “did not benefit from the satellite services.”

The Court’s View of the Issue

At the “trial court” level, which took place in U.S. Bankruptcy Court, the judge granted summary judgment in favor of satellite provider, Intelsat, citing that the debtor received a “reasonably equivalent value” for the asset transfers, notably because:

  • The debtor (television station) received and used the services
  • The debtor and parent company had such a shared identity of interests that any benefit conferred upon the parent was necessarily conferred upon the debtor as well, albeit indirectly

The U.S. District Court then confirmed the ruling and the parties appealed the case to the Eleventh Circuit. After reviewing the Trust’s perplexing argument, the Court ultimately upheld the lower courts’ decisions, holding that the term “value” should be defined broadly. Further, the Court held that the real inquiry is whether Intelsat conferred “[any] economic benefit upon the debtor, either directly or indirectly” – not whether an actual property right was transferred.

Contact a Ft. Lauderdale Creditors’ Rights Law Firm Today

To learn more about the creditors’ rights process, particularly within complex commercial bankruptcy proceedings, please contact attorney Michael L. Feinstein in Ft. Lauderdale today: (954) 767-9662.