USA Law and Practice Contributed by: Davis Lee Wright, Natalie D. Ramsey, Katherine M. Fix and Rachel Jaffe Mauceri, Robinson & Cole LLP
7.4 Other Consequences for Directors and Officers See 7.2 Personal Liability of Directors . 8. Setting Aside or Annulling a Transaction 8.1 Circumstances for Setting Aside a Transaction or Transfer A trustee or a DIP can seek recovery of fraudulent transfers (11 USC Section 544, 548) and preferential transfers (11 USC Section 547) made to third parties. Fraudulent Transfers A trustee (or DIP) may avoid any transfer made within two years before the bankruptcy filing date, where the debtor made the transfer: • with the “actual intent to hinder, delay, or defraud” its creditors; or • in exchange for less than “reasonably equivalent value”, at a time when the transferor: (a) was insolvent; (b) was undercapitalised; (c) was generally unable to pay its debts as they came due; or (d) made the transfer to an insider under an employment contract outside the ordinary course of business. While the look-back period is two years under 11 USC Section 548, Section 544 allows a trustee or DIP to borrow any longer state-law fraudulent transfer look- back period, which could be up to four or six years after the transfer was consummated. Transferees who “take for value” and in “good faith” may have a defence to fraudulent transfer actions (11 USC Section 550 (b)). The word “value” in this context is defined as “property, or satisfaction or securing of a present or antecedent debt of the debtor”; 11 USC Section 546 also provides a broadly construed safe harbour for settlement payments “made by, to, or for the benefit of certain financial entities”.
a court will infer the existence of traditional fiduciary duties. Generally, when a corporation is solvent, DOMs owe fiduciary duties to the corporation’s shareholders. This general rule holds even when a corporation approach - es insolvency. It is only when a corporation becomes actually insolvent that the focus of the fiduciary duty shifts to a corporation’s residual claimants (which includes creditors as well as shareholders). 7.2 Personal Liability of Directors Failure of directors to satisfy applicable fiduciary duties may result in personal liability. Directors and officers may be sued for breach of fidu - ciary duty directly or derivatively. To assert a direct breach of fiduciary duty, a shareholder must establish that: • a fiduciary relationship existed; • the fiduciary breached a duty to the shareholder; and • the breach resulted in losses or damages that were personal or unique to the shareholder. If the corporation generally suffered damages and losses not unique to the shareholder, then the share - holder must bring a derivative suit for the benefit of the corporation. If the corporation is insolvent, creditors may bring a derivative suit on behalf of the corporation for breach of fiduciary duty; creditors generally are not entitled to bring direct actions against the directors or officers for breach of a fiduciary duty. Typically, this right is vested in the debtor; if the debtor refuses to act, an official committee may seek permission or “standing” from the bankruptcy court. 7.3 Duties and Personal Liability of Officers Officers generally have the same fiduciary duties – and the same potential personal liability – as directors. Under some state laws, governance documentation may exculpate these individuals.
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