Financial Restructuring Practice Group
1 of 5
May 18, 2012
In re TOUSA, Inc.—Eleventh Circuit Reinstates Widely
Criticized Fraudulent Transfer Decision
On May 15, 2012, the United States Court of Appeals for the Eleventh Circuit
issued an opinion in the TOUSA, Inc. (“TOUSA”) chapter 11 bankruptcy
cases reinstating a $480 million fraudulent transfer judgment previously
entered by the United States Bankruptcy Court for the Southern District of
Florida (the “Bankruptcy Court”) against the so-called “Transeastern
Lenders.”i In doing so, the Eleventh Circuit both opened the door to a narrow
reading of the term “reasonably equivalent value” in the fraudulent transfer
provisions of the Bankruptcy Code and endorsed an expanded view of the
entities subject to such fraudulent transfer liability.ii
The Eleventh Circuit affirmed the Bankruptcy Court’s widely criticized
ruling, which had avoided as fraudulent transfers certain liens and related
indebtedness incurred by TOUSA’s debtor subsidiaries (the “Conveying
Subsidiaries,” and together with TOUSA, the “Debtors”) in connection with
$500 million of “rescue financing” incurred by TOUSA and the Conveying
Subsidiaries six months prior to the Debtors’ bankruptcy filings (the
“Refinancing”). The proceeds of the Refinancing were used to repay the
Transeastern Lenders for obligations of TOUSA that were not guaranteed by
or secured by property of the Conveying Subsidiaries. Not only did the
Bankruptcy Court avoid the transfer of the new liens in favor of the New
Lenders, but it also ordered the Transeastern Lenders to disgorge the proceeds
of the Refinancing (with interest) on the basis that they were bad faith
recipients of the proceeds of a fraudulent transfer (i.e., the Refinancing). On
appeal, the United States District Court for the Southern District of Florida
(the “District Court”) quashed the Bankruptcy Court’s decision with respect
to the Transeastern Lenders. The Eleventh Circuit, however, affirmed the
liability findings of the Bankruptcy Court and concluded that the factual
record supported the conclusions that: (a) the Conveying Subsidiaries did not
receive reasonably equivalent value and (b) the Transeastern Lenders were
entities for whose benefit the fraudulent transfers had been made.
BACKGROUND
TOUSA and the other Debtors were in the business of designing, building
and marketing for sale detached single-family residences, townhomes and
condominiums under various brand names. Prior to their bankruptcy filing in
January 2008, the Debtors financed their operations through a $700 million
revolving working capital facility (the “Revolver”) and the issuance of over
For more information, contact:
Sarah R. Borders
+1 404 572 3596
sborders@kslaw.com
W. Austin Jowers
+1 404 572 2776
ajowers@kslaw.com
Mark M. Maloney
+1 404 572 4857
mmaloney@kslaw.com
Michael C. Rupe
+1 212 556 2135
mrupe@kslaw.com
Jeffrey R. Dutson
+1 404 572 2803
jdutson@kslaw.com
King & Spalding
Atlanta
1180 Peachtree Street, NE
Atlanta, Georgia 30309-3521
Tel: +1 404 572 4600
Fax: +1 404 572 5100
www.kslaw.com
