Houston Locke Lord Team Obtains Result in Favor of Chapter 7 Trustee in Fifth Circuit

Simon Mayer, with assistance from Elizabeth Guffy and Aditi Deal (all of Houston), led a Locke Lord team that represented a bankruptcy trustee in front of the U.S. Court of Appeals for the Fifth Circuit. On direct appeal from the bankruptcy court, the Fifth Circuit determined that the pre-petition payment of insurance proceeds to a tort claimant, made in accordance with state insurance law, constituted a “transfer of an interest of the debtor in property” for purposes of the bankruptcy preference statute, 11 U.S.C. § 547 where the insurance policy limits were insufficient to cover a multitude of tort claims against the debtor.

According to the opinion, because the policy proceeds would have been property of the estate had they not been transferred pre-petition, the debtor had an interest in the policy proceeds under the bankruptcy preference statute. The Court determined that the pre-petition payment of the insurance proceeds did not affect the debtor’s equitable interest in such proceeds as of the petition date. The Fifth Circuit affirmed the bankruptcy court’s holding that the trustee had properly alleged a transfer of the debtor’s property as required by 11 U.S.C. § 547.
Posted on October 17, 2023