The existence of fraud can significantly affect valuations based on a balance sheet analysis.
Valuation is by nature more of an art than a science, and testifying experts and finders of fact are free to utilize any number of methods to determine solvency on a case by case basis.
Because a plaintiff seeking to avoid a prepetition transfer as constructively fraudulent must demonstrate that the debtor was insolvent or inadequately capitalized at the time of the challenged transfer, valuation analyses that support allegations of insolvency are critical. The repurchase occurred a mere three months before the company borrowed over billion, a transaction that the court described as having “a crushing effect on Adelphia’s solvency.” A threshold question addressed by the court was the precise date on which Adelpia’s solvency should be tested.
A recent opinion issued by the Bankruptcy Court for the Southern District of New York in , Adv. The Trust argued that the stock repurchase encompassed a series of transactions, including (i) the stock repurchase itself, through which Adelphia paid 0 million for the repurchase of its own stock, and (ii) a subsequent stock redemption, over eight months later, in which Adelphia affiliate Olympus Communications, L. made a second purchase from FPL Group, redeeming FPL’s interest in a joint venture partnership between Olympus and FPL.
To those on the buy side, I have found Gleacher and Imperial to have the best listing of stubs (and if you know of anyone else that does a good job, please end me an email).
Recoveries from fraudulent conveyance lawsuits can be a significant source of recovery for creditors of bankruptcy estates. and its affiliate, Mayberry Investments Inc., arising from a pre-petition stock repurchase transaction that was consummated by the debtor for the benefit of former management.
Even after the bankruptcy changes from 2005, bankruptcies take a LONG time to be 100% completed.
at 483, under which we examine conclusions of law de novo and findings of fact for clear error, see Highmark Inc.
In , a trust established under the cable television operator’s chapter 11 plan was vested with a 0 million fraudulent transfer claim against defendants FPL Group, Inc.
The opinion demonstrates that where the company’s historical financial records are fraudulent or suspect, the best method for proving solvency is through the introduction of evidence of market comparables as opposed to use of the more traditionally favored discounted cash flow method.
Doug Ernst’s practice focuses on bankruptcy, financial restructuring and complex business litigation matters.
He has represented Creditors, Debtors, Trustees and Committees.