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The Ninth Circuit Rejects the “Dominion and Control Test” for Determining the Initial Transferee in Fraudulent Conveyance Actions

Under section 550(a) of the Bankruptcy Code, a trustee or debtor in possession may recover property (or its value) that has been fraudulently transferred “from the initial transferee or the entity for whose benefit the avoided transfer was made.”  While the trustee’s right to recover from an initial transferee is absolute once a transfer is deemed fraudulent, a subsequent transferee may assert affirmative defenses that could prevent recovery by the estate of an otherwise avoidable transfer.  As a result, defendants in fraudulent transfer litigations often take great pains to characterize themselves as subsequent transferees as opposed to initial transferees.  Continue reading

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