## Facts

- TOUSA, Inc., a homebuilder, operated through subsidiaries (the “Conveying Subsidiaries”) that were closely tied to the parent’s financing and liquidity, including a revolving credit facility with cross-default risk.
- A TOUSA subsidiary participated in a joint venture financed by lenders (the “Transeastern Lenders”); TOUSA and that subsidiary guaranteed the venture debt.
- After the venture failed, the Transeastern Lenders declared default and sued TOUSA on its guaranty, exposing TOUSA and the corporate group to potential insolvency and cascading defaults under other debt instruments.
- On July 31, 2007, TOUSA entered a settlement requiring payment of approximately $421 million to the Transeastern Lenders.
- To fund the settlement, a syndicate of “New Lenders” provided roughly $500 million in new financing secured by liens on assets of TOUSA and the Conveying Subsidiaries; the subsidiaries also incurred related obligations under the new credit agreements.
- The loan proceeds were wired through a TOUSA-designated agent to the Transeastern Lenders’ agent to satisfy the settlement.
- In January 2008, TOUSA and its subsidiaries filed Chapter 11.
- The Official Committee of Unsecured Creditors sued under 11 U.S.C. §§ 548 and 550 to avoid the subsidiaries’ lien grants and recover the settlement proceeds as constructive fraudulent transfers.
- The bankruptcy court ruled for the Committee, finding no reasonably equivalent value to the Conveying Subsidiaries and holding the Transeastern Lenders liable as entities “for whose benefit” the transfers were made; it ordered disgorgement of approximately $403–421 million plus interest.
- The Transeastern Lenders appealed to the district court.

## Issues

1. Whether the Conveying Subsidiaries received “reasonably equivalent value” for granting liens and incurring obligations in the July 31, 2007 financing, for purposes of avoiding a constructive fraudulent transfer under 11 U.S.C. § 548(a)(1)(B).
2. Whether, under 11 U.S.C. §§ 548 and 550, the transaction involved a transfer of an interest in property of the Conveying Subsidiaries and, if so, whether the Transeastern Lenders were liable as entities “for whose benefit” the transfer was made.
3. Whether the bankruptcy court’s factual findings on value, solvency, and related matters were clearly erroneous, including in light of its adoption of proposed findings.

## Decision

- The district court reversed the bankruptcy court and vacated the avoidance and recovery orders against the Transeastern Lenders.
- The court held the Conveying Subsidiaries received reasonably equivalent value through indirect benefits from the settlement and financing, including avoiding an immediate bankruptcy-triggered default cascade and preserving access to liquidity.
- The court rejected imposing § 550(a)(1) liability on the Transeastern Lenders as entities “for whose benefit” the subsidiaries’ liens were transferred, viewing the repayment as occurring through new financing arranged at the enterprise level rather than as a direct benefit from a transfer of subsidiary property.
- The court concluded the Committee failed to sustain the elements required for constructive fraudulent transfer on the record as properly assessed, including the asserted lack of value and related insolvency showing.

## Legal Principles

- Under 11 U.S.C. § 548(a)(1)(B), a constructive fraudulent transfer requires proof of (i) a transfer of an interest of the debtor in property, (ii) receipt of less than reasonably equivalent value, and (iii) the debtor’s insolvency (or similar financial condition) at the time of the transfer or as a result of it.
- “Reasonably equivalent value” may include indirect benefits to the debtor, including benefits arising from preserving liquidity, avoiding immediate default consequences, and maintaining ongoing operations within an integrated corporate group.
- Under 11 U.S.C. § 550(a)(1), recovery from an entity “for whose benefit” a transfer was made requires a sufficiently direct connection between the debtor’s transfer and the alleged benefit; repayment of an existing creditor through a multi-party refinancing does not automatically establish beneficiary liability tied to a particular debtor’s lien grant.

## Conclusion

The district court set aside the bankruptcy court’s constructive fraudulent transfer judgment, holding that the subsidiaries’ lien grants were supported by reasonably equivalent value through indirect, enterprise-linked benefits and that the repaid creditors were not properly treated as § 550 “for whose benefit” recipients on the transaction record.


In re TOUSA, Inc., 444 B.R. 613 (S.D. Fla. 2011)