Bankruptcy – Safe Harbor

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7^th Circuit Court of Appeals

Case Name: FTI Consulting, Inc. v. Merit Management Group, LP

Case No.: 15-3388

Officials: WOOD, Chief Judge, and POSNER and ROVNER, Circuit Judges.

Focus: Bankruptcy – Safe Harbor

Section 546(e) Safe Harbor provision in the Bankruptcy Code does not protect transfers made through financial institutions where the entity is only a conduit and not a debtor or transferee.

“We recognize hat we are taking a different position from the one adopted by five of our sister circuits, which have interpreted section 546(e) to include the conduit situation. See In re Quebecor World (USA) Inc., 719 F.3d 94 (2d Cir. 2013) (finding safe harbor applicable where financial institution was trustee and actual exchange was between two private entities); Contemporary Indus. Corp. v. Frost, 564 F.3d 981, 987 (8th Cir. 2009) (finding § 546(e) not limited to public securities transactions, and exempting from avoidance Chapter 11 debtor’s payments that were deposited in a national bank in exchange for shareholders’ privately-held stock during leveraged buyout, as settlement payments made to financial institution); In re QSI Holdings, Inc., 571 F.3d 545, 551 (6th Cir. 2009) (finding HSBC’s role in a leveraged buyout “sufficient to satisfy the requirement that the transfer was made to a financial institution” although it was only the exchange agent); In re Resorts Int’l, Inc., 181 F.3d 505, 516 (3d Cir. 1999) (noting that “the requirement that the ‘commodity brokers, forward contract merchants, stockbrokers, financial institutions, and securities clearing agencies’ obtain a ‘beneficial interest’ in the funds they handle … is not explicit in section 546”); In re Kaiser Steel Corp., 952 F.2d 1230, 1240 (10th Cir. 1991) (rejecting Kaiser’s argument that “even if the payments were settlement payments, § 546(e) does not protect a settlement payment ‘by’ a stockbroker, financial institution, or clearing agency, unless that payment is to another participant in the clearance and settlement system and not to an equity security holder”).”

Reversed and Remanded

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.