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"The avoidance powers" [2019] ELECD 2085; in Lubben, Stephen (ed), "American Business Bankruptcy" (Edward Elgar Publishing, 2019) 69

Book Title: American Business Bankruptcy

Editor(s): Lubben, Stephen

Publisher: Edward Elgar Publishing

Section: Chapter 6

Section Title: The avoidance powers

Number of pages: 10

Abstract/Description:

The Code gives the trustee various rights and powers, some of which are collectively referred to as the avoidance or avoiding powers. These powers foster equal treatment among creditors, by defeating any pre-bankruptcy creditor (or debtor) efforts to drain assets out of the debtor, and thus the estate. Three key avoiding powers are the preference provisions, the fraudulent transfer provisions, and the trustee’s “strong arm” provisions. Additionally, every state has its own fraudulent conveyance or transfer law, which is applicable outside of bankruptcy as well as in bankruptcy. Preference actions avoid two problems: the debtor’s management picking winners and losses on the eve of filing, and some creditors getting better treatment than others simply by virtue of when the petition is filed. Fraudulent transfer actions return assets to the estate that left either for inadequate value, or as part of the debtor’s plot to hide its assets. And the strong arm powers allow the trustee to harness the powers of individual creditors for the benefit of the estate as a whole.