Delaware Business Bankruptcy Report : Delaware Business Bankruptcy Report : Morris James LLP Lawyers & Attorneys

Pension Transfer Corp. v. Beneficiaries Under the Third Amendment to Fruehauf Trailer Corp. Retirement Plan No. 003 (In re Fruehauf Trailer Corp.), 444 F.3d 203 (3d Cir. 2006) (Circuit Judge Thomas L. Ambro)

The Delaware District Court approved the avoidance of an alleged fraudulent transfer under §548(a)(1) of the Bankruptcy Code of a surplus from a union pension plan that was used to provide benefits to management through a pre-petition amendment to the debtor’s pension plan.

The pension plan had been amended on September 19, 1996 and the Debtor filed its bankruptcy petition approximately two weeks later.

The District Court found that there was not reasonably equivalent value provided to the Debtor for the loss of the surplus used to provide benefits to management. The Defendants had failed to prove that the plan amendment helped to retain key personnel so that the debtor could sell its assets as a going concern.

On appeal, the Third Circuit concluded that the amendment to the pension plan was fraudulent despite the lack of a precise calculation of the benefits conferred and received by the plaintiff.

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Cohen v. KB Mezzanine Fund II (In re Submicron Sys. Corp.), 432 F.3d 448 (3d Cir. 2006) (Circuit Judge Thomas L. Ambro)

The Plan Administrator for the Debtor’s estate commenced an adversary proceeding seeking to recharacterize the secured claims of insiders of the debtor from debt to equity, or in the alternative, to equitably subordinate the claims and impose a constructive trust. The District Court entered judgment in favor of the defendants, and the Third Circuit affirmed. The Third Circuit held that the creditors’ security interests were properly perfected, and that their credit bids to purchase assets of the debtor were not capped by the economic value of the collateral securing their claims. Instead, they could credit bid up to the full face value of their secured claims.

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