was likely last refreshed within SoL (while sub2 “revolver” insolvent)… thus, MAY be guaranty” fraudulent transfer … “cross-stream (Evergreen) sub2 MAY have received in 2002, but NOT in REV 2009 states that obligation in writing is incurred when § 6(e)(2) writing is executed NOT refreshed (2002 controls)… guaranty BUT, NO such language in (an silence”) § 548(d) … “eloquent IS refreshed (within 2-yr. SoL)… guaranty thus, if proceeds under then MAY be trustee § 544(b), … affected by beneficial for to plead CUFTA § 6(e)(2) trustee ONLY (NOT AND § 548 § 544(b) § 548) Factoring into analysis… cross-corporate guaranty insolvency Assume C-lender loans $100M to parent… sub issues “upstream after sub files for bankruptcy, goes after C-lender for guaranty”… trustee unlikely that sub received BUT, assuming lack fraudulent transfer REV… of is sub insolvent? REV, If $100M is on sub’s then YES contingent liability balance sheet, insolvent… BUT, if ONLY 1% by parent (primary chance of default obligor), … then ONLY 1% upon sub (secondary chance of call obligor) listed on sub’s as ONLY $1M contingent liability balance sheet (likely NOT insolvent) Arguable whether should even be on contingent liability balance sheet… BUT, as per (7th Circuit), Xonics/Covey contingent liability … should NOT be on at face value, unless balance sheet contingency certain to occur rather, should be booked at real value (consideration that guarantor-sub MAY never have to pay) To prevent liability (by showing that guarantor-sub was fraudulent transfer NOT insolvent), C-lender must discount sub’s by probability balance sheet of parent’s (as decrease, increases) chance of default liabilities equity BUT, how is parent’s quantified? chance of default Dueling experts court splits the difference Self-serving document if parent IS extraordinarily solvent, then is minimal chance of default
“revolver” was likely last refreshed within SoL (while sub2 insolvent)… … thus, “cross-stream guaranty” MAY be fraudulent transfer (Evergreen) sub2 MAY have received REV in 2002, but NOT in 2009 § 6(e)(2) states that obligation in writing is incurred when writing is executed guaranty NOT refreshed (2002 controls)… … BUT, NO such language in § 548(d) (an “eloquent silence”) guaranty IS refreshed (within 2-yr. SoL)… … thus, if trustee proceeds under § 544(b), then MAY be affected by CUFTA § 6(e)(2) beneficial for trustee to plead ONLY § 548 (NOT § 544(b) AND § 548) Factoring cross-corporate guaranty into insolvency analysis… Assume C-lender loans $100M to parent… sub issues “upstream guaranty”… after sub files for bankruptcy, trustee goes after C-lender for fraudulent transfer unlikely that sub received REV… BUT, assuming lack of REV, is sub insolvent? If $100M contingent liability is on sub’s balance sheet, then YES insolvent… … BUT, if ONLY 1% chance of default by parent (primary obligor), then ONLY 1% chance of call upon sub (secondary obligor) contingent liability listed on sub’s balance sheet as ONLY $1M (likely NOT insolvent) Arguable whether contingent liability should even be on balance sheet… … BUT, as per Xonics/Covey (7th Circuit), contingent liability should NOT be on balance sheet at face value, unless contingency certain to occur rather, should be booked at real value (consideration that guarantor-sub MAY never have to pay) To prevent fraudulent transfer liability (by showing that guarantor-sub was NOT insolvent), C-lender must discount sub’s balance sheet by probability of parent’s chance of default (as liabilities decrease, equity increases) BUT, how is parent’s chance of default quantified? Dueling experts court splits the difference Self-serving document if parent IS extraordinarily solvent, then chance of default is minimal
Bankruptcy_Schechter-Fall-2009.docx