By Mark Chehi, Robert Weber and Stephen Della Penna of Skadden, Arps, Slate, Meagher & Flom LLP
The U.S. Bankruptcy Court for the Southern District of New York recently dismissed intentional fraudulent transfer claims asserted against former shareholders of Lyondell Chemical Company. Weisfelner v. Fund 1 (In re Lyondell Chemical Co.), 541 B.R. 172 (Bankr. S.D.N.Y. 2015) (“Lyondell II”). The Bankruptcy Court opinion adopts a strict view of what constitutes “intent,” and thereby tightens pleading standards applicable to complaints asserting intentional fraudulent transfers.
The intentional fraudulent transfer claims at issue focused on Basell AFSCA’s 2007 leveraged acquisition of Lyondell Chemical Company. As is typical in LBO transactions, Lyondell itself borrowed money to finance the LBO and pay its former shareholders for their Lyondell shares. Just 13 months later, Lyondell filed a voluntary chapter 11 petition.
A bankruptcy trustee subsequently asserted fraudulent transfer claims against the former Lyondell shareholders to recover the LBO payments received by them. The litigation asserted that the 2007 LBO transaction was avoidable as an intentional fraudulent transfer. The Bankruptcy Court dismissed the claims and adopted a restrictive pleading standard that requires an intentional fraudulent transfer plaintiff to plead facts that show “actual intent, as opposed to implied or presumed intent.” The plaintiff must allege some sort of “intentional action to injure creditors.” Alleging “[o]ther wrongful acts that . . . may be seriously prejudicial to creditors” – such as negligence or a breach of fiduciary duty – will not support an intentional fraudulent transfer claim.
The full article is available here.