In recent weeks, the dispute in Windstream’s bankruptcy between Windstream and its REIT spinoff Uniti Group over the lease transaction that ultimately led to Windstream’s chapter 11 bankruptcy has continued to escalate with Windstream filing an adversary complaint against Uniti.  In its complaint, Windstream seeks to recharacterize the lease as a disguised financing alleging that the lease resulted in a long-term transfer of billions of dollars to Uniti to the detriment of Windstream’s creditors. The debtors’ complaint also alleges that they were insolvent no later than the third quarter of 2017, and argues that the above-market rent payments and tenant capital improvements they were required to make under the lease constitute constructively fraudulent transfers, as the debtors have not received reasonably equivalent value under the lease.

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On April 23, 2019, the United States District Court for the Southern District of New York, in fraudulent transfer litigation arising out of the 2007 leveraged buyout of the Tribune Company, ruled on one of the significant issues left unresolved by the US Supreme Court in its Merit Management decision last year (which we addressed in a previous post).  The district court held Tribune’s post-bankruptcy litigation trustee was barred from asserting certain constructive fraudulent transfer claims against former Tribune shareholders based on what Judge Denise Cote termed a “straightforward” application of the Section 546(e) settlement payment safe harbor.  See In re Tribune Co. Fraudulent Conveyance Litigation, No. 12 cv 2652 (DLC), 2019 WL 1771786 (S.D.N.Y. Apr. 23, 2019). In addressing the extent to which a party’s status as a customer of a “financial institution” (as defined in the Bankruptcy Code) affects the applicability of Section 546(e), the district court was the first court post­-Merit Management to squarely address that question.
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