No Way Out: Section 546(e) is No Escape for the Public Shareholder of a Failed LBO

Tuesday, January 1st, 1991 at 12:00 am by Neil M. Garfinkel
Neil M. Garfinkel, No Way Out: Section 546(e) is No Escape for the Public Shareholder of a Failed LBO, 1991 Colum. Bus. L. Rev. 51

Leveraged buyouts that later become insolvent have recently been subject to attack by the trustees in bankruptcy through fraudulent conveyance law. The trustees have asserted claims against the lenders who financed the acquisition, the insiders who approved of and benefitted from the plan, and the selling shareholders who received a substantial premium for tendering their shares. A recent Tenth Circuit decision has focused attention on the limits placed by Congress on the trustee’s avoidance powers in the context of the securities and commodities markets. Reading section 546(e) in light of Congress’s stated intent and with an understanding of the mechanisms underlying the markets suggests that this section should not be extended to protect public shareholders. The concerns that motivated section 546(e)’s genesis simply do not obtain with enough force in the public shareholder context to merit its application, and it is far too blunt an instrument to be fashioned into a tool used to protect shareholders. It is a very narrow provision, and neither its purpose nor policy considerations in general speak convincingly to its application in this area.

Author Information