Why transfers are reviewed
Bankruptcy avoidance provisions permit specified transactions to be challenged for the benefit of the estate. Review payments, new liens, guarantees, distributions, insider transactions, and asset sales rather than limiting the analysis to obvious gifts.
The fact that money was owed does not automatically protect its payment from preference review. Conversely, proximity to a filing does not automatically establish a recoverable transfer.
Preferences under § 547
Section 547 sets elements and defenses for preference claims, including timing, the debt relationship, insolvency requirements, and comparative recovery. Insider status and the relevant lookback period can matter.
Ordinary-course, new-value, contemporaneous-exchange, and other statutory issues require evidence. Preserve invoices, delivery dates, payment histories, credit terms, communications, and how payments were applied.
Fraudulent or voidable transfers
Section 548 addresses specified transfers and obligations involving intent or inadequate value with additional financial conditions. Section 544 can bring applicable nonbankruptcy law into the analysis. Those legal theories have different elements and limitations.
A transaction need not involve a criminal conviction to be challenged under these provisions. Valuation, solvency, purpose, timing, and the relationship of the parties can become disputed factual questions.
Recovery and practical value
Section 550 addresses recovery in connection with avoided transfers, with conditions and defenses. Identify the transferee, any subsequent recipients, available records, collectability, and the cost of litigation.
Potential claims should be valued realistically. A theoretical cause of action with uncertain proof or an insolvent defendant is not equivalent to cash available for distributions.
Decision records during distress
Maintain contemporaneous support for major transfers, lender concessions, asset marketing, insider arrangements, and board approvals. Identify conflicts and obtain the legal analysis appropriate to the transaction.
Do not structure a wind-down around the assumption that moving assets to an affiliate will place them beyond creditor scrutiny. Compare lawful sale, workout, and fiduciary-administration routes with complete disclosure.