Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
Wire transfers and other bank deposits into a debtor’s unrestricted personal checking account aren’t “transfers” under the federal Bankruptcy Code, the U.S. Court of Appeals for the Fourth Circuit held Jan. 31 ( Ivey v. First Citizens Bank & Tr. Co. (In re Whitley) , 4th Cir., No. 15-2209, 1/31/17 ).
In this case, the transactions didn’t diminish the bankruptcy estate or place funds beyond the reach of creditors, and weren’t avoidable, or can’t be undone, as fraudulent transfers, Chief Judge Roger L. Gregory wrote.
Courts are divided over whether the definition of “transfer” under Bankruptcy Code Section 101(54) includes deposits in a debtor’s unrestricted checking account during the regular course of business, the court said.
When a debtor is free to access those funds at will, the required “disposing of” or “parting with” property hasn’t occurred, so there hasn’t been a transfer, the court concluded.
Debtor James Whitley was involved in a Ponzi scheme in which he defrauded his friends and family of millions. After the scheme unraveled, eight creditors filed a petition to force Whitley into bankruptcy.
Two years after he was convicted of wire fraud and money laundering, Chapter 7 trustee Charles M. Ivey, III, filed a complaint against First Citizens Bank & Trust Co. It alleged that certain deposits and wire transfers to Whitley’s personal checking account at First Citizens were avoidable as fraudulent transfers under Bankruptcy Code Section 548.
Because the transfers didn’t diminish the bankruptcy estate or place funds beyond the reach of creditors, they weren’t avoidable as fraudulent transfers, the bankruptcy and district courts found.
The trustee unsuccessfully argued on appeal that where actual fraudulent intent is present, there is no requirement that the transactions diminish or move property away from the bankruptcy estate.
Judge James A. Wynn Jr., and Senior Judge Andre M. Davis joined the opinion.
Ivey, McClellan, Gatton & Siegmund, L.L.P., represented the Chapter 7 trustee; Ward & Smith, P.A., represented First Citizens Bank.
To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)