Article
Giving Back a Fraudulent Transfer: A Defense to Liability?
American Bankruptcy Law Journal
(2020)
Abstract
In Whitlock v. Lowe (In re Deberry) (5th Cir. 2019), the Fifth Circuit court of appeals found it obvious that if a transferee gives back fraudulently transferred funds (which the debtor then dissipates), the transferee has a complete defense to liability to the transferor’s bankruptcy trustee. This puts the Fifth Circuit at odds with the Sixth and Seventh Circuits, where the prepetition give-back counted as no defense. This article concludes that a more nuanced position should mediate between these extremes, based on an “innocent donee” defense retrieved from Nineteenth Century precedent. The article emphasizes that if bad faith transferees for value are accorded no defense, bad faith donees who give back voluntarily should have no defense either. The article also distinguishes fraudulent transfers from self-settled resulting trusts. If the facts show a resulting trust in which the transferor retains the beneficial interest, the give-back defense is absolute, since the transferee owes no duty to the creditors of the transferor. Many of the fraudulent transfer give-back cases are actually mis-diagnosed. They were really cases of resulting trusts.
Keywords
- fraudulent transfer,
- bankruptcy,
- good faith purchase,
- good faith donee,
- Uniform Fraudulent Transfer Act
Disciplines
Publication Date
2020
Citation Information
David G. Carlson. "Giving Back a Fraudulent Transfer: A Defense to Liability?" American Bankruptcy Law Journal Vol. 94 (2020) Available at: http://works.bepress.com/david_carlson/126/