The Tribune Co. which filed for Chapter 11 bankruptcy in December 2008, is being accused of fraudulent conveyance because of a $8.6 billion transaction before the company filed bankruptcy.
After an investigation that included getting documents from Tribune, the Official Committee of Unsecured Creditors formally asked U.S. Bankruptcy Court in Delaware for permission to file a complaint alleging fraudulent conveyance in the leveraged buyout engineered by real estate mogul Sam Zell. The complaint would allege that the senior lenders who funded the deal, and are claiming nearly all equity in the company in bankruptcy, knew from the start the transaction would inevitably lead to bankruptcy, and so should be cut out of access to Tribune assets.
If the company is convicted of fraudulent conveyance the junior creditors may be is entitled to recover some or all of the assets transferred which were transferred before the Chapter 11 bankruptcy filing. Fraudulent conveyance is a very common accusation brought against debtors during bankruptcy, especially if there was some type of transfer of assets right before the bankruptcy was filed. In many cases the conveyance is a good-faith transfer where the debtor gave a little more than they should have during the transaction. But sometimes fraudulent conveyance claims are accurate and reflect a debtor’s attempt to hide or shift assets or even give preferential treatment to certain creditors over others. In personal bankruptcy this often happens when a debtor repays a relative or friend right before filing bankruptcy. To avoid becoming ensnared in a fraudulent conveyance claims speak with your bankruptcy attorney before you transfer assets.