Bankruptcy

Would this work?

By Stephen Lubben

Word on the street is that Capmark liquidated its derivative portfolio pre-bankruptcy to avoid having to deal with the safe harbors in the Bankruptcy Code. Cash is still subject to the automatic stay, unlike derivative contracts.

Imagine, for a moment, if they sold their portfolio "too cheap," in a rush to liquidate before the petition date. Wouldn't this be a fraudulent transfer? "But wait," you say. "Section 546 clearly prohibits a trustee or DIP from bringing any sort of fraudulent transfer action related to a derivative contract." True, but what if a creditor moved to lift the automatic stay and pursue the action, non-derivatively, under the UFTA or UFCA (in New York)?

Full post as published by Credit Slips on October 28, 2009 (boomark / email).