Court of Appeals Affirms Bankruptcy Court Decision on Due Diligence

On May 22, 2012, Cravath issued to its clients a memo entitled “Court of Appeals Cautions Creditors to Exercise Due Diligence in Accepting Payoff from a Borrower’s Affiliates.” The memo discusses the United States Court of Appeals for the Eleventh Circuit’s long-awaited decision, which upheld a bankruptcy court’s ruling affecting lenders. The court ruled that a refinancing and payoff of secured lenders using proceeds of a new loan to financially troubled affiliates that were not obligated on the original loan was a constructively fraudulent transfer that could be recovered from the paid lenders.

Please click here to read the memo.