Chapter IX Conclusion

• Jurisdiction: United States

Chapter IX Conclusion

Nearly half a millennium after its codification in the Statute of Elizabeth, the fraudulent transfer remedy remains vital. As with other age-old remedies, the expansion and evolution of the fraudulent transfer action over the past five centuries has been a reflection of, and reaction to, the increasing complexity and scope of economic activity and market organization. The rise of the corporation, the industrial revolution, the increased use and complexity of debt and leverage, the creation of bankruptcy courts, and similar transformational developments have driven the change from being a simple remedy intended in large part to prevent the exploitation of sanctuaries from the King's writ. It has now become a remedy of sufficient sophistication and flexibility that it can play a central role in working justice in the aftermath of a failed leveraged buyout affecting thousands or millions of individuals.

Today, many of the controversies surrounding the remedy's scope and application are a reflection of this continuing adaptation of the remedy to modern economic life. The recent debates concerning § 546(e) of the Bankruptcy Code, discussed herein, are examples.⁹⁴⁹ Congress included the fraudulent transfer remedy among the bankruptcy trustee's array of tools, granting avoidance powers sufficiently broad that they could cause secondary effects in the securities markets in cases where wrongdoers have effected their fraud through use of those markets. Concerned about certain such effects, Congress subsequently chose to partially limit those federal avoidance powers, but today, recipients of fraudulent transfers argue that Congress intended even broader protection for the securities markets such that even creditors asserting their own fraudulent transfer claims under state law, after a bankruptcy trustee has completed his or her work, may not proceed with those claims. The circuit courts have turned to adjudication of these issues, and their resolution will likely further clarify the role that the fraudulent transfer remedy will play in an economy where fraud is often effected through the securities markets.

Another current controversy concerns an issue in some ways even more fundamental: What courts may adjudicate fraudulent transfer claims? U.S. bankruptcy courts have become perhaps the central arena for first-instance adjudication of complex fraudulent transfer claims given the centrality of fraudulent transfer issues to many modern...