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world map extraterritorialityThe fraudulent transfer provisions of the Bankruptcy Code give trustees broad power to avoid transfers of property that were made by the debtor before the bankruptcy case if either (1) the debtor transferred the property with actual intent to hinder, delay or defraud creditors or (2) the debtor received less than reasonably equivalent value in exchange for the transferred property. 11 U.S.C. §548(a)(1). If the transfer is avoidable, then a separate provision of the Bankruptcy Code gives trustees power to recover the property from the initial transferee or any subsequent transferee who received the property directly or indirectly from the initial transferee. 11 U.S.C. §550(a). In cases where trustees seek to recover property from subsequent transferees located outside the United States who received the property from transferors also located outside the United States, the question arises whether the Bankruptcy Code’s fraudulent transfer recovery provision reaches that transaction—in other words, whether §550(a) applies extraterritorially to allow trustees to recover property from foreign subsequent transferees.

The U.S. Court of Appeals for the Second Circuit recently issued an opinion in In re Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities, Case No. 17-2992 (2d Cir. Feb. 25, 2019) (BLMIS) concluding that trustees can pursue recovery from foreign subsequent transferees who received property in transactions that occurred entirely outside the United States. The opinion reversed two lower court rulings and arguably conflicts with Supreme Court precedent on extraterritoriality of U.S. legislation.

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