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Recent TOUSA Development Reverses Bankruptcy Court

February 16, 2011

Last Friday, the U.S. District Court for the Southern District of Florida, in a well-reasoned opinion extending for more than 100 pages, reversed the Bankruptcy Court on certain important issues in the case of  In re TOUSA, Inc., 408 B.R. 913 (Bankr. S.D.Fla. 2009).  Goldberg Kohn Ltd. and Otterbourg, Steindler, Houston & Rosen P.C., as Co-General Counsel of the Commercial Finance Association ("CFA"), filed amicus briefs in two related appeals.

The TOUSA decisions arose out of loans (the "New Loans") advanced by two syndicates of lenders (the "First Lien Lenders" and the "Second Lien Lenders") to finance the settlement of litigation brought by another group of lenders (the "Transeastern Lenders") against, primarily, the TOUSA parent entity, TOUSA, Inc.  The Bankruptcy Court found that the liens granted by various subsidiaries of TOUSA, Inc. to secure the New Loans, as well as the payment of the proceeds of the New Loans to the Transeastern Lenders to settle the litigation, were fraudulent transfers under Section 548 of the Bankruptcy Code.  In doing so, the Bankruptcy Court also invalidated the "savings clauses" set forth in the documents governing the New Loans (and typically found in upstream guarantees).

To read the complete alert click here.

To review the opinion click here.

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