vol 15, num 2 | August 2019
 
 
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Commercial Fraud
 
AN ABI COMMITTEE NEWSLETTER
 
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The Fifth Circuit Punts on the Futility Exception
Michael D. Napoli
 
Michael D. Napoli
Akerman LLP
Dallas
 
 
The Fifth Circuit recently certified an important question under the Uniform Fraudulent Transfer Act (UFTA) to the Texas Supreme Court. At issue is the futility exception to the good-faith defense provided by § 8(a) of UFTA. Specifically, the Fifth Circuit asked the Texas Supreme Court to determine whether UFTA’s good-faith defense is “available to a transferee who had inquiry notice of the fraudulent behavior, did not conduct a diligent inquiry, but who would not have been reasonably able to discover that fraudulent activity through diligent inquiry.” This question has a significant impact on the ability of receivers and trustees to recover fraudulent transfers arising out of Ponzi and other fraudulent schemes.

UFTA provides a defense to a fraudulent-transfer action for transferees who take in good faith and for value. Although the statute does not define “good faith,” most courts use a “knew or should have known” test. Thus, if the transferee knows of sufficient facts that would cause a reasonable person to inquire as to the debtor’s insolvency or fraudulent intent, the transferee does not act in good faith unless it conducted a diligent inquiry into the circumstances of the transfer that did not discover the fraud or insolvency. Alternatively, some courts hold, a transferee on inquiry notice can establish good faith by showing that a diligent inquiry would have been futile — thus, the futility exception.

 
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A Primer on Pursuing Unlawful Dividend Claims Under Delaware Law
Ben Barnes
 
Ben Barnes
Reid Collins & Tsai, LLP
Dallas
 
 
The General Corporation Law of Delaware (DGCL) provides a right of action against corporate directors who declare a dividend while the corporation is insolvent. Such conduct may also give rise to claims for fraudulent transfer or breach of fiduciary duty, but unlawful dividend claims have several advantages. When evaluating post-bankruptcy claims, trustees, debtors-in-possession and creditors should consider the propriety of bringing an unlawful dividend claim against the corporation’s directors and the shareholders who received an improper dividend.

The Statute
Section 170 of the DGCL vests the corporation’s board of directors with the exclusive power to declare dividends. However, that power is not without limit. With limited exception, a corporation may only issue a dividend out of its surplus. Likewise, a corporation may not purchase or redeem its own shares if its capital is impaired. “Surplus” is “[t]he excess, if any, at any given time of the net assets of the corporation over the amount … determined to be capital.” “Net assets means the amount by which total assets exceed total liabilities.”

 
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Commercial Fraud Committee Leadership for 2019
The Commercial Fraud Committee is proud to announce our new leaders for 2019!

You can also visit the committee's homepage for more newsletter articles, relevant recordings and other committee information.

The committee is always eager to welcome new volunteers. Please contact any member of our leadership team to find out how you can get involved.

Ryan W. Blackney
 
Ryan W. Blackney
Co-chair

Freeborn & Peters LLP
Chicago
 
 
Melissa Davis
 
Melissa Davis
Co-Chair

KapilaMukamal, LLP
Fort Lauderdale, Fla.
 
 
Virginia Tate
 
Virginia Tate
Communications Manager

FAI International, Forensic Accounting & Investigations
Coeur D Alene, Idaho
 
 
Walter F. McArdle
 
Walter F. McArdle
Education Director

Spain & Gillon, LLC
Birmingham, Ala.
 
 
Nathaniel J. Palmer
 
Nathaniel J. Palmer
Membership Relations Director

Reid Collins & Tsai LLP
Austin, Texas
 
 
Michael D. Napoli
 
Michael D. Napoli
Newsletter Editor

Akerman LLP
Dallas
 
 
Adam D. Crane
 
Adam D. Crane
Special Projects Leader

HSM Chambers
Georgetown, Grand Cayman, Cayman Islands
 
 
 
 
 
 
 
Bankruptcy Views from the Bench - Georgetown Law Center
 
 
 
Winter Leadership Conference
 
 
 
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