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Befuddlement Betwixt Two Fulcrums: Calibrating The Scales Of Justice To Ascertain Fraudulent Transfers In Leveraged Buyouts, John H. Ginsberg, M. Katie Burgess, Zachary R. Caldwell, Daniel R. Czerwonka

John H. Ginsberg

In a leveraged buyout, a company goes deep into debt and grants liens on its assets to finance the purchase of itself. The company’s risk of insolvency increases with its debt burden. Unsecured creditors of the company are exposed to insolvency risk without compensation, unlike the parties to the leveraged buyout—buyer, seller and lender—all of whom expect good returns on the lesser risks to which they are exposed. When a leveraged buyout leaves the acquired company with “unreasonably small capital” such that insolvency is “reasonably foreseeable” upon consummation of the buyout, unsecured creditors may have recourse to constructive-fraudulent-transfer law. They …