Bankruptcy Law | Law
The Madoff case provided fertile ground for testing boundaries of the U.S. Bankruptcy Code. This paper looks at one boundary-testing dispute that forced the SDNY District Court to assess the extraterritorial reach of rules governing recovery of fraudulent transfers. The trustee for the Madoff estate sought to recover property that had been transferred from Madoff’s Ponzi scheme to offshore feeder funds, which in turn transferred the property to customers located abroad. The SDNY court stopped the trustee. In its view, the trustee was seeking extraterritorial application of Section 550, that the text of this section does not overcome the presumption against extraterritoriality, and that the doctrine of comity counseled against extraterritorial application. In this paper, I argue that the court probably reached the wrong conclusion. Not only does the court’s decision create a loophole in avoidance actions and have other odd implications, but the Code itself points to the opposite conclusion.
Edward R. Morrison,
Extraterritorial Avoidance Actions: Lessons from Madoff,
Brooklyn Journal of Corporate, Financial & Commercial Law, Vol. 9, p. 163, 2014
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