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Bankruptcy Keyed to Levitan, 3rd Ed.
Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V.
Citation:
651 F.3d 329 (2011)Facts
Between October 25 and November 6, 2001, Enron, facing financial difficulties, drew down on its $3 billion revolving lines of credit and paid out more than $1.1 billion to retire certain unsecured and uncertificated commercial paper prior to maturity. Enron redeemed the commercial paper at accrued par value (original price plus accrued interest), which was considerably higher than the paper’s market value at that time. The offering memoranda for the commercial paper stated that the notes were not redeemable or subject to voluntary prepayment prior to maturity.
The redemption process involved three broker-dealers (J.P. Morgan, Goldman Sachs, and Lehman Brothers) who received the commercial paper from individual noteholders and paid them the redemption price. The Depository Trust Company (DTC) facilitated these transfers by debiting the redemption price from each broker-dealer’s account and crediting it to the noteholder’s account. The broker-dealers then transferred the notes to Enron’s issuing and paying agent’s DTC account and received payment from Enron through the DTC. After payment, the commercial paper was extinguished in the DTC system.
ING and Alfa owned Enron commercial paper worth $48,200,000 and $5,667,255 respectively, which they transferred to J.P. Morgan in exchange for the redemption price. On December 2, 2001, Enron filed for Chapter 11 bankruptcy. Two years later, Enron brought adversary proceedings against approximately 200 financial institutions, including Alfa and ING, seeking to avoid and recover the redemption payments as preferential transfers under 11 U.S.C. § 547(b) or constructively fraudulent transfers under 11 U.S.C. § 548(a)(1)(B).
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