Unlimited Liability for Banks: Deposits as Fraudulent Transfers

Authors

Katherine ZampasFollow

Abstract

One of a trustee’s most valuable resources in bankruptcy proceedings is his avoidance powers. A trustee is charged with the duty to recover and recapture any property wrongfully removed from the estate by way of fraudulent transfer or preference. In some cases, a trustee has attempted to treat a debtor’s deposit into a bank account as a transfer, rendering it subject to his avoidance powers. Such a result will leave banks collaterally responsible as a transferee for a debtor’s conduct despite their lack of culpability and control over the funds.

The definition of transfer within the Bankruptcy Code is comprehensive and the legislative intent compels a broad reading. Numerous courts have considered the issue of whether a deposit constitutes an avoidable transfer and have reached contrary conclusions, some with a broad interpretation and some more narrow. Following a decision by the Fourth Circuit, in late 2017 the Supreme Court declined to consider the issue, leaving the law unclear. This comment seeks to determine how “transfer” should be interpreted under the Bankruptcy Code and provide guidance to courts and practitioners faced with a deposit a trustee seeks to avoid as a fraudulent transfer through a set of factors to consider in each unique case. This comment also considers the effect on banks and financial intermediaries should courts impose liability on them as initial transferees of an account holder’s deposits and withdrawals.

First Page

1389

Last Page

1420

Date Created

11-2019

Publisher

St. Mary's University School of Law

Editor

Katherine Spiser Rios

Recommended Citation

Katherine Zampas, Unlimited Liability for Banks: Deposits as Fraudulent Transfers, 50 St. Mary's L.J. 1389 (2019).
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol50/iss4/6