The Supreme Court narrows the Bankruptcy Code safe harbor for securities transaction payments

The Supreme Court, in Merit Management Group, LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018), recently resolved a circuit split in the interpretation of the Bankruptcy Code’s safe harbor provision.

The Court held that section 546(e) does not protect transfers made through a financial institution to a third party regardless of whether the financial institution had a beneficial interest in the transferred property. Instead, “the only relevant transfer for purposes of the safe harbor is the transfer that the trustee seeks to avoid.” This decision will have implications for companies pursing leveraged buyout transactions.

 

Authored by Erin Brady

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