![]() ![]() The secured creditor filed a discharge of the option and sold the property.Īfter the property sold, the former owner and tenant each filed chapter 11 petitions and listed both the lease and option to repurchase the property as assets in their bankruptcies. Despite repeated notices, the former owner and tenant were “radio silent” and did not exercise the repurchase option. Several years later, the secured creditor issued notices required by the confirmed plan to the former owner and to the tenant in order to terminate the lease and to trigger the period within which the former owner could exercise the repurchase option, failing which the option would lapse. The plan specified the timing for the repurchase option to be exercised. In connection with that plan, the tenant signed a new lease and the (former) owner was granted the option to repurchase the property from the secured creditor. Under the debtor’s court-approved chapter 11 plan, its property was sold to a secured creditor. The facts of the case are somewhat convoluted, but boil down to this: The owner of a building and real estate in New Jersey leased the premises to a restaurant tenant. The Third Circuit ruled that a third party’s pre-bankruptcy termination of a debtor’s real estate purchase option was not a “transfer” capable of being set aside as a fraudulent conveyance. A recent non-precedential opinion by the Court of Appeals for the Third Circuit illustrates one of those limits. Historically, section 548(a) has been applied to set aside a wide variety of pre-bankruptcy transactions, ranging from something-for-nothing conveyances among family members to landlords’ lawful terminations of debtor-tenants’ below-market leases. Section 548(a) of the Bankruptcy Code empowers a trustee or a chapter 11 debtor-in-possession to set aside “transfers” occurring within two years before bankruptcy that are deemed to be “fraudulent.” In general, transfers are “fraudulent conveyances” under section 548(a) if the debtor makes the transfer with the actual intent to hinder, delay or defraud its creditors or if the debtor makes the transfer while insolvent and without receiving a reasonably equivalent value in exchange.
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