Earth to Creditors: Triangular Payment Arrangements May Constitute “Reasonably Equivalent Value”

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By Bryce Suzuki and Amanda Cartwright of Bryan Cave

The Eleventh Circuit Court of Appeals recently clarified the meaning of “reasonably equivalent value” in a complex fraudulent transfer case. In In re PSN USA, Inc., Case No. 14-15352 (11th Cir. Sept. 4, 2015), the Court found that payments made to fulfill contractual obligations of third parties were not fraudulent transfers where an economic benefit was directly or indirectly conferred upon the transferor.

This decision provides particular insight into fraudulent transfers in the context of parent-subsidiary and other triangular payment arrangements. Even though the debtor, a cable television channel, was not a party to the underlying satellite services contract at issue, the Court held that payments made from the debtor to the satellite services company pursuant to its parent company’s contracts constituted “reasonably equivalent value” and could not be avoided as constructive fraudulent transfers.

The Court’s opinion hinged on benefits derived by the debtor from those contracts.  Specifically, the satellite services contracts, to which the debtor was not party, permitted the debtor to operate a television channel and earn a service fee from that operation. The indirect benefit to the debtor through the contracts was sufficient to satisfy the “reasonably equivalent value” requirement, and the Eleventh Circuit affirmed the bankruptcy court’s order that the transfers were not avoidable.

The full article is available here.