Vol 17 (2020) - Issue 1

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Non-US Investors in Non-US Entities Beware: You May Be Subject to Clawback Under US Law if the Investment is Ultimately with a US Entity

Synopsis

In a case stemming from the collapse of the infamous Madoff Ponzi scheme, the Unites States District Court for the Southern District of New York (the 'Court') ruled in 2014 that foreign entities that indirectly invested in the Madoff fund through foreign feeder funds could not be targeted in avoidance actions brought under the United States Bankruptcy Code ('Bankruptcy Code'). The United States Court of Appeals for the Second Circuit ('Second Circuit'), however, disagreed and held that neither the presumption against extraterritoriality nor international comity limited the ability to recover avoided transfers pursuant to Bankruptcy Code section 550(a).