AVOIDING POWERS -

Fraudulent Transfers -

Trustee may avoid transfer as actual fraudulent transfer only if ultimate decision-maker has fraudulent intent. Before entering into a two-step LBO transaction, the debtor formed a special board committee of independent directors, which hired professional advisers. Each step required separate financing. It sought solvency opinions for each step of the transaction. The opinions were based on management projections, but before the issuance of the first opinion, management had concluded the company would not make the projections, yet the opining firm was not advised of this new information. The transaction’s first step closed using borrowed money, and major shareholders, who were represented on the board, sold their shares. Before the second step, management revised its projections again. The opining firm, based on management misrepresentations, ultimately issued a second solvency opinion. Although two other advisers did not agree with the opinion, they did not try to stop the transaction, which then closed. The company failed one year later. The liquidating trustee sued to avoid the transactions as actual fraudulent transfers. A corporation can act only through individuals; state law determines who has authority to act for the corporation—in this case, the board of directors— which delegated its authority to the special committee. Actual fraudulent intent can be established only through the intent of the individuals who have the authority to control the transfer. Here, the management projections may have misled the special committee and the advisers, but there was no allegation that the board itself intended to hinder, delay, or defraud creditors. Moreover, it is “unreasonable to assume actual fraudulent intent whenever the members of a board [stand] to profit from a transaction they recommended or approved.” Therefore, the complaint fails to allege actual fraudulent intent adequately, and the court dismisses the complaint. In re Tribune Co. Fraudulent Conveyance Litigation, 10 F. 4th 147 (2d Cir. 2021).