A Search for Reason in Reasonably Equivalent Value after Bfp V. Resolution Trust Corp.

Abstract

Under the Bankruptcy Code, a trustee can avoid a transfer of the property of the estate made within one year before the bankruptcy case is filed if the debtor was insolvent at the time of the transfer and the transfer price was "less than the reasonably equivalent value" of the property. Beginning in the early 1980s, courts disagreed over the meaning of "reasonably equivalent value" as applied to foreclosure sales and other regulated transfers where the transfer price was below the hypothetical "fair" market value of the property, but the transfer occurred without collusion. The issue was whether the differential was "unreasonable" for purposes of the trustee's power to avoid transfers for "less than reasonably equivalent value." In 1994, the issue came before the Supreme Court in BFP v. Resolution Trust Corp.; however, the Court did not completely resolve the meaning of the term. This article examines how bankruptcy courts have applied BFP in actions to avoid regulated transfers in the ten years after BFP. It explains why courts continue to search for a reasoned way to decide whether a regulated transfer price is the "reasonably equivalent value" of the transferred property, and proposes an interpretation of the term that makes sense in the context of regulated transfers.

Keywords: bankruptcy, regulated transfer, reasonably equivalent value

JEL Classification: G33