![]() After a 13-day trial, the bankruptcy court granted the relief sought by the Creditors’ Committee. The official committee of unsecured creditors (the “Creditors’ Committee”) appointed in Tousa then sought to avoid the obligations incurred and the liens granted by the Conveying Subsidiaries as fraudulent transfers pursuant to section 548 of the Bankruptcy Code (“Section 548”). Six months later, Tousa and the Conveying Subsidiaries filed for relief under Chapter 11 of the Bankruptcy Code. This financing was secured by a lien on substantially all of the assets of Tousa and the Conveying Subsidiaries. Tousa and its subsidiaries (the “Conveying Subsidiaries”) were co-borrowers under the July Financing. ![]() The Settlement was financed by new rescue lenders (the “Rescue Lenders”) with a first-lien credit facility in the amount of $200 million and a second-lien facility in the amount of $300 million (the “July Financing”). To settle the subsequent litigation, Tousa agreed to pay the Existing Transeastern Lenders more than $421 million (the “Settlement”). The joint venture was unsuccessful, and Transeastern defaulted on $675 million of debt owed to the existing lenders (“Existing Transeastern Lenders”). In 2005, a wholly-owned subsidiary of Tousa and another entity entered into a joint venture called the Transeastern joint venture (“Transeastern”). This decision adds a new layer of risk to financing transactions involving entities that are on the brink of insolvency. Tousa has been followed closely by lenders and bankruptcy attorneys and with the reversal, the Eleventh Circuit cast a shadow on financing practices, swinging a $421 million pendulum back in favor of the debtor. (“Tousa”) reinstating the bankruptcy court’s decision that the transfer of funds to a lender in connection with a financing intended to keep the distressed borrower out of bankruptcy constituted a fraudulent transfer subject to claw-back under the Bankruptcy Code. On May 15, 2012, the United States Court of Appeals for the Eleventh Circuit reversed the decision of the Southern District of Florida (the “District Court”) in In re Tousa, Inc. Lenders that finance distressed companies have a renewed reason for concern.
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