## Facts

- TOUSA, Inc., a homebuilder, financed operations through bond debt and a revolving credit facility led by Citicorp.
- TOUSA joined a Transeastern-related venture financed by approximately $675 million from the Transeastern Lenders; TOUSA guaranteed certain obligations, but several subsidiaries later called the “conveying subsidiaries” were not obligors on that venture debt.
- After the venture failed, the Transeastern Lenders asserted large claims against TOUSA and sued based on TOUSA’s guaranty.
- On July 31, 2007, TOUSA settled with the Transeastern Lenders for $421 million.
- TOUSA funded the settlement through new first- and second-lien credit facilities arranged by Citicorp and provided by new term lenders (the New Lenders).
- The conveying subsidiaries guaranteed the new debt and granted liens on substantially all their assets to secure it, despite not being liable for the Transeastern venture debt.
- Most of the new loan proceeds were used to pay the $421 million settlement; remaining amounts paid fees and transaction costs.
- Approximately six months later, TOUSA and the conveying subsidiaries filed Chapter 11.
- The Official Committee of Unsecured Creditors sought to avoid the subsidiary liens and guarantees as constructive fraudulent transfers, alleging insolvency (or similar financial distress) and lack of reasonably equivalent value.
- The bankruptcy court avoided the liens as fraudulent transfers and ordered recovery, including requiring the Transeastern Lenders to disgorge roughly $403 million as entities “for whose benefit” the transfer was made.
- The district court reversed, concluding the subsidiaries received sufficient indirect benefits (including avoiding default or bankruptcy).
- The Eleventh Circuit reversed the district court and reinstated the bankruptcy court’s judgment.

## Issues

1. Whether the conveying subsidiaries’ liens and guarantees securing the 2007 financing were avoidable as constructive fraudulent transfers because the subsidiaries did not receive reasonably equivalent value under 11 U.S.C. § 548(a)(1)(B).
2. Whether the Transeastern Lenders were “entities for whose benefit” the transfers were made, permitting recovery from them under 11 U.S.C. § 550(a)(1).
3. Whether the district court improperly reweighed evidence instead of applying clear-error review to the bankruptcy court’s fact findings on value and beneficiary status.

## Decision

- The Eleventh Circuit reversed the district court and reinstated the bankruptcy court’s avoidance and recovery orders.
- The court held the bankruptcy court did not clearly err in finding the conveying subsidiaries received no reasonably equivalent value for incurring the liens and guarantees.
- The court accepted that asserted indirect benefits (such as postponing bankruptcy or avoiding default) could be considered, but upheld the finding that any such benefits were too speculative and insubstantial relative to the obligations imposed.
- The court upheld treating the Transeastern Lenders as entities “for whose benefit” the lien transfers were made and affirmed recovery of the settlement proceeds from them under § 550(a)(1).

## Legal Principles

- Reasonably equivalent value under § 548(a)(1)(B) is a fact-intensive determination; appellate review must defer to bankruptcy court fact findings unless clearly erroneous.
- Indirect benefits may qualify as “value,” but they must be concrete and substantial when compared to the liabilities and encumbrances undertaken; speculative or short-lived advantages may be insufficient.
- A transfer may be avoided as constructively fraudulent when an insolvent (or similarly distressed) debtor incurs obligations or grants liens without receiving reasonably equivalent value.
- Under § 550(a)(1), recovery of an avoided transfer’s value may be obtained from an initial transferee or from an entity for whose benefit the transfer was made; a creditor paid through a structure funded by avoided liens can qualify as such a beneficiary.

## Conclusion

The Eleventh Circuit reinstated avoidance of subsidiary liens and guarantees used to fund a parent’s settlement payment, holding the bankruptcy court permissibly found no reasonably equivalent value and allowing recovery from the paid lenders as beneficiaries under § 550(a)(1).


In re TOUSA, Inc., 680 F.3d 1298 (11th Cir. 2012)