## Facts

- A Maryland resident purchased a house in the Bahamas.
- She later executed a deed of gift transferring the Bahamian property to her two children (one in Maryland, one in Virginia).
- The children delayed recording the deed in the Bahamas to avoid Bahamian transfer taxes.
- After the debtor experienced serious financial problems, the children recorded the deed in the Bahamas in mid-2000.
- Creditors filed an involuntary Chapter 7 petition; an order for relief was entered in early 2001.
- The Chapter 7 trustee sued to avoid the transfer as constructively fraudulent under 11 U.S.C. § 548(a)(1)(B) and to recover the property or its value for the estate.
- The transferees conceded the debtor received less than reasonably equivalent value and was insolvent when the deed was recorded in 2000; they contested only whether § 548 could apply to the foreign real property and whether comity required applying Bahamian law.

## Issues

1. Whether applying 11 U.S.C. § 548 to avoid a transfer of foreign real property is barred by the presumption against extraterritoriality.
2. Whether international comity required applying Bahamian law (or deferring to Bahamian interests) rather than applying § 548 to the transfer.

## Decision

- The Fourth Circuit affirmed the judgment allowing the trustee’s avoidance action to proceed.
- The court held the avoidance action was not an impermissible extraterritorial application of § 548.
- The court held international comity did not require applying Bahamian law or declining to apply § 548 in these circumstances.

## Legal Principles

- Section 548 may reach a prepetition transfer of foreign property when, absent the transfer, the asset would have been “property of the estate” within the meaning of 11 U.S.C. § 541 (which includes property “wherever located”).
- The presumption against extraterritoriality does not bar applying § 548 where the Bankruptcy Code’s structure indicates congressional intent to protect the estate’s assets without a territorial limitation.
- International comity is discretionary and generally does not displace U.S. bankruptcy avoidance law absent a concrete conflict with foreign proceedings or a strong countervailing foreign sovereign interest.
- When the transferee concedes the elements of constructive fraudulent transfer under § 548(a)(1)(B) (lack of reasonably equivalent value and insolvency at the relevant transfer time), avoidance follows unless a valid legal bar applies.

## Conclusion

The court allowed a Chapter 7 trustee to avoid a constructively fraudulent transfer of Bahamian real property recorded shortly before bankruptcy because the Bankruptcy Code’s estate-and-avoidance provisions reach such property, and comity did not justify applying foreign law where the debtor and transferees were U.S. residents and no competing foreign insolvency proceeding existed.


In re French, 440 F.3d 145 (4th Cir. 2006)