CBS Fraudulent Transfers & Avoidance Actions 2 — Questions and Answers
Question 1: What is the look-back period for avoiding preferential transfers to insiders under Section 547 of the Bankruptcy Code?
- 90 days
- 6 months
- 1 year (Correct answer)
- 2 years
Correct answer: 1 year
For transfers to insiders (as defined in Section 101), the preference look-back period extends to 1 year before the petition date, compared to 90 days for non-insiders.
Question 2: Under the 'ordinary course of business' defense to a preference claim under Section 547(c)(2), a transfer may be protected if it was made:
- In the ordinary course of business or financial affairs of both the debtor and transferee, or according to ordinary business terms (Correct answer)
- Within 30 days of when the debt was incurred
- For more than reasonably equivalent value
- To a creditor holding a perfected security interest
Correct answer: In the ordinary course of business or financial affairs of both the debtor and transferee, or according to ordinary business terms
The ordinary course of business defense protects transfers consistent with the parties' established payment history or standard industry practices.
Question 3: A trustee seeks to avoid a lien under Section 547 as a preference. Which element is NOT required to establish a preferential transfer?
- Transfer to or for the benefit of a creditor
- Transfer on account of an antecedent debt
- Fraudulent intent by the debtor (Correct answer)
- Transfer while the debtor was insolvent
Correct answer: Fraudulent intent by the debtor
Unlike fraudulent transfer claims, preference avoidance under Section 547 does not require any showing of fraudulent intent — it is based solely on the effect of the transfer.
Question 4: Under Section 549 of the Bankruptcy Code, the trustee may avoid post-petition transfers of estate property that are:
- Authorized by the bankruptcy court
- Made in the ordinary course of business with court approval
- Not authorized under the Bankruptcy Code or by the court (Correct answer)
- Made to secured creditors with valid liens
Correct answer: Not authorized under the Bankruptcy Code or by the court
Section 549 allows the trustee to avoid unauthorized post-petition transfers of property of the estate, protecting the estate from dissipation after filing.
Question 5: The 'contemporaneous exchange for new value' defense under Section 547(c)(1) protects a preference payment when:
- The creditor extends new credit within 30 days of receiving the payment
- The transfer was intended and actually resulted in a contemporaneous exchange for new value given to the debtor (Correct answer)
- The debtor was solvent at the time of transfer
- The amount transferred was less than $6,825
Correct answer: The transfer was intended and actually resulted in a contemporaneous exchange for new value given to the debtor
This defense applies when both parties intended a simultaneous exchange and new value was actually provided in exchange for the payment, preserving the economic neutrality of the transaction.
Question 6: Under state fraudulent transfer law incorporated via Section 544(b), a trustee may avoid transfers that are avoidable by:
- Any creditor, even one without a specific claim against the estate
- At least one actual unsecured creditor holding an allowable claim (Correct answer)
- The U.S. government as a creditor
- A majority of creditors by dollar amount
Correct answer: At least one actual unsecured creditor holding an allowable claim
Section 544(b) allows the trustee to step into the shoes of an actual creditor who could avoid the transfer under applicable state law, typically the Uniform Fraudulent Transfer Act.
Question 7: A subsequent transferee (not the initial recipient) of a fraudulently transferred asset may avoid liability under Section 550 if they took the property:
- For fair market value regardless of knowledge
- In good faith and for value, without knowledge of the voidability of the transfer (Correct answer)
- As a gift with no consideration
- From an insider of the debtor
Correct answer: In good faith and for value, without knowledge of the voidability of the transfer
Section 550(b) provides a safe harbor for subsequent transferees who took for value, in good faith, and without knowledge that the initial transfer was voidable.
CBS Fraudulent Transfers & Avoidance Actions 2
What is the look-back period for avoiding preferential transfers to insiders under Section 547 of the Bankruptcy Code?