Lyondell Shareholder Clawback Law360 Article wrote a fantastic write-up on the Lyondell Shareholder Clawback decision:

The Bradshaw Law Group represents defendant shareholders for a flat annual fee of $2,000 (which only covers 2 days of hearings per year).


Lyondell Shareholders Can’t Shake Creditors Clawback Suit

By Kat Greene

Law360, Los Angeles (January 15, 2014, 7:14 PM ET) — A New York federal judge refused Wednesday to toss a suit brought by the creditors who loaned $21 billion to Lyondell Chemical Co. seeking to claw back funds paid to stockholders in the company, ruling the shareholders aren’t protected by the Bankruptcy Code.

U.S. District Judge Robert Gerber rejected the shareholders’ argument that they should keep the $12.5 billion paid to them when the company was picked up in a leveraged buyout in 2007, finding instead that state fraudulent transfer laws are not preempted by Section 546(e) of the Bankruptcy Code.

“In the LBO context, state fraudulent transfer laws do no more than attach consequences to past conduct, and grants rights of action to those — unpaid creditors — who have been injured thereby,” Judge Gerber said. “The court rules that state law constructive fraudulent transfer claims brought on behalf of individual creditors are not impliedly preempted, by Section 546(e) or otherwise.”

The group of creditors, known as LB Creditor Trust, are suing Lyondell shareholders for the $12.5 billion payout they received as a result of the merger. Trustee Edward S. Weisfelner alleges the payments were fraudulent transfers that benefited shareholders and management but ultimately led to the company’s financial demise.

Lyondell was purchased by Luxembourg conglomerate Basell AF SCA in December 2007 in a leveraged buyout in which the Houston-based chemical maker took on $21 billion in debt to fund its own takeover.

Hardly a year later, in January 2009, the payments on the loans that financed the all-debt takeover —and, the creditor trust argues, a $12.5 billion payout to shareholders — rendered Lyondell’s finances too tenuous to manage and the company filed for bankruptcy.

By then, according to the suit, Lyondell’s assets had been severely depleted.

Shareholders are generally the most junior in a company’s financing structure, meaning they are the last to be paid in the event of a bankruptcy.

The creditor trust argues that the company should have known the payment to shareholders would smother the company’s finances and that the payments, which the trustee calls fraudulent transfers, never should have been made in the first place.

The case is one of a trio of suits filed against Lyondell’s bankruptcy estate seeking reparations for creditor losses. The suit began in New York state court, but was removed to federal court later.

Weisfelner filed the state court suit in 2011, seeking to get back a portion of the $12.5 billion paid to shareholders during Lyondell’s 2007 leveraged buyout, an amount he says was far too high.

You can read the full article at Law360

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