It’s hard to think of a worse time to pop the bubble of U.S. global bankruptcy dominance than the 4th of July holiday weekend – our annual celebration of American exceptionalism. But that is precisely what happened in the latest Madoff opinion. In an opinion signed on Sunday, July 6th, Judge Rakoff applied the presumption against extraterritorial application to the Bankruptcy Code and held that section 550(a)(2), which imposes liability on subsequent recipients of avoided transfers, cannot be applied to transfers between two foreign entities. See SIPC v. Bernard L. Madoff Investment Securities LLC (In re Madoff Securities), No. 12-mc-115 (S.D.N.Y. July 7, 2014) (Rakoff, D.J.).While the facts involve a very foreign transaction, the reasoning is broadly stated and would limit all avoidance powers to only domestic transactions. Further, once the presumption is let out of its box, it is hard to articulate a limiting principle that prevents it from neutering other, more critical, Bankruptcy Code provisions. The strongest argument for extraterritorial application of the Bankruptcy Code is the “wherever located” language that appears in the section 541 property of the estate provision and the 28 U.S.C. § 1334(3)(1) jurisdictional grant. Arguably this language demonstrates that Congress intended for the entire Code to apply globally. Judge… Read full this story
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