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The Essential Resource for Today’s Busy Insolvency Professional
Code to Code
By Steven J. BoyaJian
Continued Disagreement
Use of Federal Debt Collection Laws to Expand Fraudulent
Transfer Look-Back Periods
In Ebner v. Kaiser (In re Kaiser),1 the U.S.
Bankruptcy Court for the Northern District of
Illinois allowed a bankruptcy trustee to employ
the 10-year look-back2 period, available to the
Internal Revenue Service (IRS) under the Internal
Revenue Code (IRC), in seeking to recover pre-
petition fraudulent transfers pursuant to 11 U.S.C
§ 544 (b). This allowed the trustee to escape the
effect of Illinois’s generally applicable four-year
look-back period for the recovery of fraudu-
lent transfers under its version of the Uniform
Fraudulent Transfer Act (UFTA).3 The decision also
appears to be the second explicit rejection, follow-
ing Tronox Inc. v. Kerr McGee Corp. (In re Tronox
Inc.),4 of the Fifth Circuit’s contrary holding in MC
Asset Recovery LLC v. Commerzbank AG (In re
Mirant Corp.),5 which concluded that the Federal
Debt Collection Procedures Act (FDCPA)6 was
not “applicable law” as that phrase is employed in
§ 544 (b) (1). The Kaiser and Tronox decisions, and
the contrary authorities that they reject, evidence
continued disagreement over whether bankruptcy
trustees or debtors in possession (DIPs) may co-
opt the sometimes-advantageous look-back periods
available to the federal government when seeking to
recover fraudulent transfers.
Section 544 (b) (1) and Selection
of a Triggering Creditor
Section 548 allows trustees to avoid actually
and constructively fraudulent transfers occurring
within the two years preceding a debtor’s ling of
a bankruptcy petition. Section 544 (b) (1) also con-
fers authority upon trustees to avoid “any transfer
of an interest of the debtor in property or any obli-
gation incurred by the debtor that is voidable under
applicable law by a creditor holding an unsecured
claim that is allowable under section 502.” Stated
otherwise, § 544 (b) (1) “enables a trustee to do in a
bankruptcy proceeding what a creditor would have
been able to do outside of bankruptcy — except the
trustee will recover the property for the benet of
the estate.”7 This component of a trustee’s so-called
“strong arm” powers is commonly used to expand
§ 548’s two-year look-back period to the often more
generous look-back periods available under states’
fraudulent transfer laws.8
In order to proceed under § 544 (b) (1), a trustee
must establish that he/she represents the interests of
a “creditor of the debtor that actually has the req-
uisite nonbankruptcy cause of action.”9 The selec-
tion of such a creditor, sometimes referred to as a
triggering or golden creditor, has important impli-
cations for a trustee’s cause of action because the
trustee becomes subject to the same defenses that
a defendant could have raised against the trigger-
ing creditor, including the expiration of a statute
of limitations.10 Therefore, in order to successfully
challenge a fraudulent transfer outside of the typical
four-year look-back period found in state fraudulent
Steven J. Boyajian
Robinson & Cole LLP
Providence, R.I.
1 A.P. No. 13-ap-01243, 2014 Bankr. LEXIS 5202 (Bankr. N.D. Ill. Dec. 31, 2014).
2 To avoid confusion due to the extension of unexpired statutes of limitation by 11 U.S.C.
§ 546, the phrase “look-back period” is used instead of “statute of limitations” to refer to
the period during which a cause of action would remain viable outside of bankruptcy.
3 740 ILCS 160/10(a) and (b).
4 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
5 675 F.3d 530 (5th Cir. 2012).
Steve Boyajian
is counsel in the
Providence, R.I.,
ofce of Robinson
& Cole LLP.
7 In re Kaiser, 2014 Bankr. LEXIS 5202, at *24-25 (quoting In re Equip. Acquisition Res.
Inc., 724 F.3d 743, 746 (7th Cir. 2014)).
8 The vast majority of states have enacted the UFTA, which generally provides a four-year
look-back period. However, the UFTA’s look-back period is one of the more commonly
modified provisions of the UFTA. Most state laws provide for fraudulent transfer look-
back periods of between two and four years, although some are longer.
9 In re Kaiser, 2014 Bankr. LEXIS 5202, at *25 (quoting In re Equip. Acquisition Res. Inc.,
10 In re Equip. Acquisition Res. Inc., 742 F.3d at 746 (stating that “if the [triggering] creditor
could not succeed for any reason — whether due to statute of limitations, estoppel, res
judicata, waiver, or any other defense — then the trustee is similarly barred and cannot
avoid the transfer.”).
