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Understanding bankruptcy clawbacks from the American Bar Assn & Lexis/Nexis


This is one of Wine Industry Insight’s three-part series on the Fresh and Easy bankruptcy and its effects on wine and alcoholic beverage creditors. Two of the three articles contain material and links to court documents available only to premium subscribers. The three articles in the series are:



NOTE: Wine Industry Insight emailed more than two dozen of the attorneys on all sides of the bankruptcy, asking for comment. 11 attorneys defending Fresh and Easy clawback targets. Because of the pending litigation, none would speak on the record. However, all of them considered the current Unsecured Creditors Committee action an abuse of the process.


One attorney not associated with defending clawback targets responded with an angry phone call. Before hanging up abruptly, the attorney — who did not identify himself — said, “Mind your own business.”

The following are from sources that legal experts consider unbiased, authoritative and easily understood by non-legal readers.


When Can a Trustee Claw Back Payments to Creditors? — American Bar Association


[T]he Bankruptcy Code permits the trustee or debtor-in-possession to “avoid” certain preferential transfers that a debtor made to creditors in the 90-day period prior to the filing of a bankruptcy petition.

Preferential transfers should not be confused with fraudulent conveyances. Though they are often lumped together, they are distinct concepts.

A preferential transfer focuses on whether a creditor has received a payment that results in that creditor getting better treatment than other creditors in light of the bankruptcy.

A fraudulent transfer, on the other hand, looks at whether an insolvent entity has made a transfer to another party (perhaps a creditor, but often not) for which the insolvent entity did not receive reasonably equivalent value in return.


[F]ive elements that make up a preferential transfer.

First, the transfer must be to or for the benefit of a creditor.

Second, the transfer must relate to an antecedent debt owed before the transfer.

Third, the transfer must have been made while the debtor was insolvent.

Fourth, the transfer must have occurred within 90 days prior to the filing of the bankruptcy petition, or one year prior to the filing if the creditor/transferee is an “insider” of the debtor.

Last, the transfer must have provided a benefit to the creditor in excess of what the creditor would have received in a Chapter 7 liquidation if the transfer had not been made.

Understanding Fraudulent Transfers And Ensuing Litigation — Law360/LexisNexis

Section 548 of the Bankruptcy Code empowers the trustee to avoid any transfer of property of the debtor or obligation incurred by the debtor if such transfer or obligation was either made with actual intent to hinder, delay, or defraud present or future creditors, or was made for less than reasonably equivalent value, and

(1) while the debtor was insolvent or rendered insolvent as a result of the transaction, or

(2) left the debtor with an unreasonably small capital, or

(3) the debtor intended to incur or believed it would incur debts that would be beyond the debtor’s ability to pay such debts when they matured.

Section 550 of the Bankruptcy Code is the statutory provision that provides the recovery of the property transferred or its value.

Section 548 of the Bankruptcy Code is applicable when the acquisition and related transfers take place within two years before the petition date. If the transaction took place over two years before the petition date, the trustee must look to applicable state law under Section 544(b) of the Bankruptcy Code in order to challenge the transaction.