February 15, 2012 Articles

Measuring Reasonably Equivalent Value

This article is the first in a four-part series addressing the complex issues bankruptcy professionals encounter when dealing with fraudulent conveyance claims and other issues related to analyzing solvency.

By Jeffrey L. Baliban

This article is the first in a four-part series addressing the complex issues bankruptcy professionals encounter when dealing with fraudulent conveyance claims and other issues related to analyzing solvency.

In analyzing whether transfers of property by a debtor may be fraudulent under 11 U.S.C. section 548 and subject to claw back by the trustee, most practitioners focus on the solvency of the debtor at the time of the transfer. To be sure, whether the debtor was insolvent at the time of the transfer in question or rendered insolvent as a result thereof is crucial, but an equally important issue in fraudulent transfer analysis is whether or not the debtor received reasonably equivalent value in exchange for the property transferred. “The cardinal feature of a constructively fraudulent transfer is that the debtor/transferor makes a transfer but receives ‘less than reasonably equivalent value in exchange for such transfer.’ 11 U.S.C. § 548(a)(1)(B)(i).” (Michael D. Fielding, Tri-Party Transactions & the Avoidance Powers [KC-1561411-1].) Where assets are transferred prebankruptcy and reasonably equivalent value is received in exchange, creditors are not perceived to have been harmed and there is no constructive fraud. While there is much information on general valuation, very little is written on what exactly constitutes reasonably equivalent value.

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