Abstract
The United States Court of Appeals for the Eleventh Circuit, in its May 15, 2012 opinion In Re. TOUSA, Inc., reversed the decision of the United States District Court for the Southern District of Florida, and affirmed the findings of the bankruptcy court, previously quashed by the district court. The analysis focused on whether the bankruptcy court clearly erred in avoiding an upstream guaranty — a transfer whereby subsidiaries issued a guaranty in order for the financially distressed parent company to obtain a loan for repayment of its previous debt. The court of appeals concluded that the mere possibility that bankruptcy filing will be thwarted does not always constitute a benefit reasonably equivalent to incurring new debt as part of an upstream guaranty.|This note reviews and updates the analysis of the concept “reasonably equivalent value” previously proposed in the September 2011 issue of the Norton Journal of Bankruptcy Law and Practice. This paper further points out that, in the aftermath of the latest TOUSA decision, lenders will think twice before agreeing to extend financing in exchange for an upstream guaranty to an entity that is in distress.