Eleventh Circuit Accepts Broad Definition of the Term "Value" in the Context of Constructive Fraudulent Transfers

In PSN Liquidating Trust v. Intelsat Corp. (In re PSN USA Inc.), 615 F. Appx. 925 (11th Cir. 2015), the Eleventh Circuit held that in the context of constructive fraudulent transfers, the term "value" may take the form of an economic benefit, either directly or indirectly, that is conferred upon the insolvent debtor by the transferee.

The case involved a debtor corporation that operated a cable television channel that broadcasted sporting events occurring throughout Latin America. Its non-debtor parent was a non-operating company, had no employees and was not authorized to conduct business in the United States. The parent contracted with a company that provided satellite services necessary for the debtor to produce and broadcast the cable television channel. The debtor was not a party to the satellite services contracts, but had a service contract with its parent pursuant to which the debtor derived a fee in return for providing all administrative, marketing and other services used to produce the television channel.

The liquidating trust, created as part of the debtor’s confirmed Chapter 11 plan and authorized to prosecute the debtor’s avoidance and recovery actions, sought to avoid approximately $3 million in payments the debtor had made to the satellite services provider on the basis that the transfers were constructively fraudulent. The trust argued that the debtor did not receive “reasonably equivalent value” in exchange for the payments under both the Bankruptcy Code (11 U.S.C. § 548(a)(1)(B)) and the Florida Uniform Fraudulent Transfer Act (Chapter 726, Florida Statutes, "FUFTA"), since the debtor was not a party to the satellite contracts, and therefore did not own the satellite services or benefit from them. The trust argued for application of FUFTA’s definition of "property," which FUFTA defined as "anything that may be the subject of ownership,” to the term "value." According to the trust, since the debtor was not a party to the satellite contracts, it did not receive an enforceable entitlement to some tangible or intangible article, and therefore did not receive "value."

The Eleventh Circuit rejected the trust's narrow interpretation of the term "value." The test for determining "reasonably equivalent value" is whether the transfer confers an economic benefit upon the debtor, either directly or indirectly. The debtor received and used the satellite services, despite the fact that it was not technically obligated on the contracts. The satellite services were necessary and critical to the debtor’s operation of the television channel. The debtor also earned a service fee from its parent company for operating the channel. In holding that the debtor received "reasonably equivalent value" in exchange for the transfers, the Eleventh Circuit confirmed its acceptance of an expansive view of what constitutes "reasonably equivalent value." It rejected the trust’s attempt to adopt a more narrow definition of the term "value" that would require the debtor to obtain legal title to property in return for the transfers.