Document Type

Research Memorandum

Publication Date




The Bankruptcy Code provides bankruptcy trustees with avoidance powers that allow the trustees to undo certain pre- and post-petition actions. The purpose of this power to allow the recovering property or interests transferred by the debtor in order to maximize the value of the bankruptcy estate for the benefit of the creditor and to provide more equitable distribution to creditors. Among these avoidance powers is the power to avoid fraudulent transfers/conveyances. In particular, the bankruptcy trustee may avoid a transfer (1) as an actually fraudulent transfer if it was made with the actual intent to hinder, delay, or defraud the debtor’s creditors; or (2) as a constructively fraudulent transfer if it was made for less than reasonably equivalent value when the debtor (a) was insolvent at the time of the transfer or rendered insolvent by the transfer, (b) was engaged in a business for which the debtor had unreasonably small capital, or (c) intended to incur debts beyond its capacity to pay.

However, these avoidance powers are subject to various limitations under the Bankruptcy Code. For example, section 546(g) of the Bankruptcy Code includes a safe-harbor provision that prohibits a bankruptcy trustee using most of his avoidance powers to avoid a transfer that was made under or in connection with a swap agreement. To determine the scope and purpose of the safe harbor provision, courts have examined the legislative history of section 546(g) and recently determined the scope of the safe-harbor provision with respect to the bankruptcy trustee.

Through the analysis of Congress’ legislative history, courts have found that the scope of section 546(g)’s safe-harbor provision is to promote stability in financial markets. As a result, the bankruptcy trustee generally cannot avoid a transaction made under or in connection with a swap agreement. Recently, bankruptcy trustees tried to circumvent this prohibition by arguing that section 546(g) only applies to bankruptcy trustees representing the estate and not to creditor representatives. This issue was litigated in Whyte v. Barclays Bank PLC, (“Barclays”), where the litigation trustee sought to avoid the novation of SemGroup's NYMEX portfolio on the ground that the transaction with Barclays was a fraudulent conveyance, asserting his claim not being brought under the Bankruptcy Code, but was rather being brought as claim under by New York’s Debtor-Creditor Law that had been assigned to the trustee by the individual creditors under the confirmed chapter 11 plan. As such, the plan was designed to circumvent the safe-harbor provision section 546(g) of the Bankruptcy Code; however, the court found this to be impermissible under the principles of federal preemption because such a finding would declare section 546(g) a nullity. However, in light of the Barclays decision, other recent decisions interpreting section 546(e) have come to a seemingly opposite conclusion.

As a result, this Article seeks to discuss the impact of the Barclays decision on the interpretation of section 546(g) of the Bankruptcy Code in light of the conflicting decisions interpreting section 546(e). Part A will briefly mention the language of section 546(g), its limitations on power of bankruptcy trustees to avoid actually fraudulent transactions and Congress’s purpose in enacting section 546(g). Part B will discuss the Barclays decision with respect to the scope of section 546(g). Part C will discuss how bankruptcy courts have decided not to follow the Barclays decision when interpreting section 546(e) of the Bankruptcy Code and how other recent court decisions have distinguished the Barclays decision and the impact this could have on the way future courts will interpret section 546(g). Finally, Part D will conclude with a summary of the implications and significance of the Barclays decision in light of the recent court decisions interpreting section 546(e) of the Bankruptcy Code.


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