The application of U.S. bankruptcy law upon transactions occurring outside the United States is complex and oftentimes heavily affected by foreign treaties, local statutes and the underlying factual circumstances. Because energy markets in particular are dominated by international trade, case developments that impose limits on the reach of the U.S. Bankruptcy Code should be of particular interest to the industry. One such recent decision was issued by the U.S. District Court for the Southern District of New York in Securities Investor Protection v. Bernard L. Madoff Investment Securities, 2014 U.S. Dist. LEXIS 91508 (S.D.N.Y. July 6, 2014).
By way of background, the Bankruptcy Code authorizes a court-appointed trustee or the debtor to avoid fraudulent and preferential transfers made before the debtor’s bankruptcy petition was filed. Section 550 of the Bankruptcy Code provides that fraudulent and preferential transfers can be recovered from either the initial recipient of the transfer or from a subsequent transferee. Through its decision in Madoff, the district court issued a significant ruling rebuffing the extraterritorial application of Section 550 of the Bankruptcy Code, thereby blocking the estate from recovering foreign transfers made between the initial recipients of funds from the pre-bankruptcy debtor and their subsequent transferees.
