Section 550 of the Bankruptcy Code provides that, when a transfer is avoided under one of several other sections of the Code, a trustee may recover “the property transferred, or, if the court so orders, the value of such property” from “the initial transferee of such transfer,” “the entity for whose benefit such transfer was made,” or “any immediate or mediate transferee of such initial transferee.” 11 U.S.C. § 550(a). (Transferees in the last category are known as subsequent transferees.)

In Jones v. Brand Law Firm, P.A. (In re Belmonte), Case No. 18-2098-bk (2d Cir. July 25, 2019), the Second Circuit affirmed both the bankruptcy court and district court decisions that found the Trustee was not barred by 11 U.S.C. § 550(d) from recovering loan proceeds that were illegally transferred. The Trustee had avoided a mortgage as a fraudulent transfer and then sought to recover the loan proceeds related to that mortgage, which were given to the debtor’s attorney.

y” for ratable distribution among customers based on their “net equity” — investments minus withdrawals (i.e., loss of principal). SIPA largely incorporates the Bankruptcy Code and allows the SIPA trustee to recover property transferred by the debtor that would have been customer property if and to the extent that the transfer would have been voidable or void under the Bankruptcy Code.Irving H. Picard, who was appointed trustee in the SIPA proceeding, brought countless actions seeking to avoid and recover transfers that he alleged were “fraudulent” (a) under Bankruptcy Code section 548(a)(1)(B “constructive fraud” fraudulent transfers in which the debtor received less than a reasonably equivalent value in exchange for the transfer, and (b) under section 548(a)(1)(A) of the Bankruptcy Code, “actual fraud” fraudulent transfers in which the transfers were allegedly made with actual intent to hinder, delay, or defraud creditors. Transfers “avoided” under section 548 can be recovered under section 550(a) of the Bankruptcy Code. The trustee’s website reports recoveries of $14.604billion, and his pursuit of recipients of BLMIS funds is ongoing.Many of the trustee’s avoidance and recovery actions dealt with transactions involving foreign parties and encountered hurdles related to the issue of whether the US avoidance and recovery law applies extraterritorially in light of the presumption against extraterritoriality that “[a]bsent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application.” If the presumption against extraterritoriality has not been rebutted, courts examine a statute’s “focus” to determine whether a case involves a domestic application. If so, the statute will apply. Decisions conflict on whether Congress intended that US avoidance and recovery provisions apply to extraterritorial transfers. The inconsistent decisions provide fertile ground for academic analysis and possible legislative reform, a matter that the National Bankruptcy Co

Technically speaking, the “clawback” suits that FTX—or, quite possibly, someone with the title of “liquidating trustee”—will prosecute will come in the form of statutory fraudulent transfer actions.Bankruptcy Code sections 548(a) and 550(a) collectively give chapter 11 debtors in possession (and trustees appointed for bad-boy debtors and post-confirmation liquidating trusts) the power to sue and recover money and other forms of property the debtor sold, loaned, gifted, or otherwise transferred to third parties within two years of the bankruptcy filing if the transfers were (literally or constructively) designed to defraud other creditors.As a baseline, section 550(a) doesn’t limit the trustee to recovery of fraudulently transferred property from the direct (initial) recipient of the transfer.Rather, 550(a) gives the trustee an expansive power to recover money and other property from not only initial transferees, but also secondary transferees-of-the-transferee and other “subsequent” transferees even further down the chain.Earlier this month, FTX literally warned potential transferee-defendants of plans to deploy this broad statutory power in a foreboding press release.That doesn’t mean that every distant recipient three

Instead, Defendant argued that Plaintiff lacked standing to bring the avoidance action because avoiding Defendant’s security interest would not benefit creditors, only Plaintiff.The Court noted that in cases decided under the Bankruptcy Act, the predecessor to the Bankruptcy Code, courts uniformly held that the purpose of the avoidance powers was to benefit creditors and that avoidance powers could not be used to benefit the debtor exclusively. The Court further noted that Bankruptcy Code section 550, which governs the liability of transferees for property transferred in avoided transfers, requires that recovery be “for the benefit of the estate,” which courts have read as a requirement that it be for the benefit of creditors. Here, however, where Plaintiff simply sought to avoid a lien, section 550 was not pleaded, and the avoidance provisions themselves do not contain the “for the benefit of the estate” language.

The Chapter 7 trustee filed a complaint against the bank seeking to avoid the transfer of the CD, recover its value and strip the bank's lien upon such recovery. The trustee argued that the bank's actions amounted to an unauthorized and reversible post-petition transfer pursuant to 11 U.S.C. § 549 and 11 U.S.C. § 550. He also asserted that liquidation of the CD violated the automatic stay under Section 362, thus requiring that the proceeds be turned over to the bankruptcy estate pursuant to 11 U.S.C. § 542. With respect to the trustee's claims under Sections 549 and 550, the bank responded that relief was unwarranted because the estate would not benefit since it would remain a secured creditor even if the transfer was unwound.

claims, because they withdrew more money from their accounts than they had deposited. These customers received not only a return of their principal investment but also fictitious "profits" that were actually other customers' money.In 2010, the SIPA trustee commenced hundreds of adversary proceedings in the bankruptcy court against former MIS customers and third parties seeking, among other things, to avoid and recover many payments as actual and constructive fraudulent transfers under federal law (see SIPA § 78fff-2(c)(3); 11 U.S.C. §§ 548(a)(1)(A) and 548(a)(1)(B)) as well as state fraudulent transfer laws (as made applicable in a SIPA proceeding under SIPA § 78fff-2(c)(3) and section 544 of the Bankruptcy Code).That litigation included an adversary proceeding against ABN AMRO Bank N.V. (presently known as Royal Bank of Scotland, N.V.) ("AMRO"), a Dutch financial institution that maintained offices in the United States. The proceeding sought to recover pursuant to sections 105(a) and 550(a) of the Bankruptcy Code approximately $308 million that AMRO received as a "subsequent transferee" from two "feeder funds" that invested with MIS in accordance with 2006 and 2008 swap agreements between AMRO and the feeder funds as well as related transactions. The SIPA trustee alleged that the payments were made with the actual intent to defraud MIS's customers and creditors and could therefore be recovered from AMRO as a subsequent transferee.The AMRO adversary proceeding was dismissed, together with avoidance litigation involving hundreds of other defendants, after the U.S. District Court for the Southern District of New York held on April 28, 2014, that: (i) contrary to normal practice, a SIPA trustee bears the burden of pleading the affirmative defense of lack of good faith in connection with litigation seeking to recover a fraudulent transfer from a subsequent transferee under section 550(a)(2); and (ii) because SIPA is part of federal securities law, the trustee must plead the "willful blindness" stan

The Code gives the trustee the power to recover the transferred property from the initial recipient, and also from subsequent recipients, “to the extent the transfer is avoided.” 11 U.S.C. § 550(a). Courts have split on whether this language requires a trustee to get a judgment avoiding a transfer prior to recovering from a subsequent transferee, or whether a trustee can simply show that the transfer is avoidable as part of the action against the subsequent transferee. A related question, however, concerns what happens when a trustee has gotten a judgment avoiding a transfer, and then seeks to recover from subsequent transferees.

The United States Bankruptcy Court for the Southern District of New York has ruled that a creditor or trustee seeking to recover a subsequent transfer under Section 550(a) of the Bankruptcy Code need not obtain a judgment of avoidance against the subsequent transferee before proceeding with the recovery action.The trustee appointed under the Securities Investor Protection Act ("SIPA") to oversee the liquidation of Bernard Madoff's securities firm began proceedings in 2009 to recover funds from transferees who had received funds from Madoff's Ponzi scheme. In September 2021, the trustee filed suit against four universities to recover funds that came indirectly from Madoff's firm. Picard v. Hebrew University of Jerusalem, et al., Adv. Proc. No. 21-1190 (Bankr. S.D.N.Y.). The funds had initially been transferred from Madoff's firm to a charitable foundation and were subsequently transferred to the defendant universities.In 2020, the trustee obtained a judgment avoiding the initial transfer to the charitable foundation, and a year later brought a recovery action against the defendants under Section 550(a) of the Bankruptcy Code and the relevant provisions of the SIPA. Section 550

The case was eventually converted to one under Chapter 7 of the Bankruptcy Code.See King, n. 8 for where copies of the Head Leases and Subleases may be found. 11 U.S.C. § 547; 11 U.S.C. § 550. See n. 4 for the relevant provisions of section 547. 11 U.S.C. § 550(a) provides:Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from —(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or(2) any immediate or mediate transferee of such initial transferee.