By: Aura M. Gomez Lopez
St. John’s University Law Student
American Bankruptcy Law Review Staff
In a case of first impression, in Whyte v. Barclays,[1] the United States District Court for the Southern District of New York recently held that a trustee for a litigation trust, created pursuant to a confirmed chapter 11 plan, could not use state law to avoid a swap agreement as a fraudulent conveyance. In Whyte, SemGroup, filed for bankruptcy in 2008.[2] On October 28, 2009, the court approved the creation of a litigation trust charged with the responsibility to liquidate SemGroup’s assets.[3] Prior to filing for bankruptcy, SemGroup entered into a novation with Barclays, by which Barclays acquired SemGroup’s portfolio of commodities derivatives.[4] However, soon after the novation was completed, the portfolio became profitable.[5] As a result, the litigation trustee sought to avoid the swap agreement on the grounds that the transaction between SemGroup and Barclays was a fraudulent conveyance under New York law.[6] The litigation trustee, however, did not attempt to avoid the swap agreement under section 544 of the Bankruptcy Code due to the safe harbor provision of section 546(g).[7] Notwithstanding the litigation trustee’s attempt to circumvent the safe harbor provision of section 546(g), the district court dismissed the trustee’s complaint and held that section 546(g) preempted the state-law fraudulent conveyance claims.[8]