PRATT ’ S JOURNAL OF BANKRUPTCY LAW
CHS . The complaint alleges that when the transaction closed and the Spin-Off Dividend was transferred , the new and independent Quorum was left insolvent , inadequately capitalized , and unable to pay its debts as they came due .
THE SAFE HARBOR
Judge Shannon ’ s ruling on the fraudulent transfer allegations focused on the 546 ( e ) safe harbor . The CHS defendants argued that the safe harbor applies on the face of the pleadings and therefore mandated dismissal . They argued that the Spin-Off Dividend was a :
• Transfer ;
• Made by or to ( or for the benefit of ) a financial participant ;
• In connection with a securities contract .
More specifically , that the dividend transferred the proceeds from the incurred debt to CHS-2 as a financial participant in connection with the SDA , as a securities contract .
The parties agreed that the Spin-Off Dividend was a transfer . Judge Shannon was left to decide whether , on the face of the pleadings , the transfer was made in connection with a securities contract and whether the transfer was made to a qualified financial participant .
Judge Shannon found that the SDA was a securities contract because it involved the transfer of equity and other securities . Therefore , the Spin-Off Dividend was made pursuant to a securities contract and was a qualifying transfer under Section 546 ( e ).
Turning to whether the transfer was made to a financial participant , Judge Shannon found that the relevant entity to be examined was CHS-2 . Further , he found that the CHS-2 was a financial participant , because it had completed a private offering of senior secured notes in the amount of $ 1.462 billion two months prior to the petition date .
These conclusions , coupled with the finding that the Section 546 ( e ) safe harbor preempted the trustee from pursuing state law fraudulent transfer claims as an assignee of the senior noteholders , led Judge Shannon to dismiss the counts attacking the transaction as a fraudulent transfer .
Judge Shannon could have halted there , but instead included the following note :
The Court notes that it is constrained by the broad language of Bankruptcy Code § 546 ( e ) to dismiss these claims despite the fact that the Plaintiffs here have plausibly alleged that the Defendants con-
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