Tronox v. Kerr-McGee,__BR__, 2013 WL6596696(Bankr SD NY Dec 12, 2013)
Tronox v. Kerr-McGee,__BR__, 2013 WL6596696(Bankr SD NY Dec 12, 2013): adversary proceeding fraudulent transfer decision, referred to as being a “Game Changing Ruling on Fraudulent Transfer and Spin-Offs to Shed Legacy Liabilities”
In a ground-breaking environmental fraudulent transfer case, a New York Bankruptcy court held that Kerr-McGee’s transfer of valuable oil and gas assets to a new company and (attempted) spin-off of the legacy liabilities to newly-formed Tronox constituted fraudulent transfer and that the transaction, which left Tronox insolvent, was not made for reasonably equivalent value.
Damages between $5.1 and $14.1 billion are anticipated, payable to the debtor (Tronox) bankruptcy estate. This ruling has a considerable impact on companies with substantial liabilities that attempt to restructure outside of bankruptcy, and is a blow to attempts to create “bankruptcy remote” entities and put assets into the bankruptcy remote entity, before a bankruptcy is filed, even years before a bankruptcy is filed. The statute of limitations under state law (such as CA state law) for seeking to recover fraudulent transfers, can be as much as 7 years from when the transfer occurred.
Opinion also discusses the Stern v. Marshall issue of consent to the bankr. court’s jurisdiction, holding that the Bankruptcy Court had authority to enter final order because Kerr-McGee filed proofs of claims against the debtors for not honoring terms of the spin-off, including failure defend environmental litigation against Tronox.
Key issues in Tronox include:
- What facts and circumstances led the court to conclude that the eventual spin-off of Tronox was both an actual and constructive fraudulent transfer?
- What reasonably equivalent value arguments put forth by Kerr-McGee were rejected by the court?
- What statute of limitations issues arose under the state UFTA and Bankruptcy Code fraudulent transfer provisions?
- How did the court rule on the Stern v. Marshall issue of consent when a creditor files a proof of claim?