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Speaker Firms and Organization: 
Alvarez & Marsal 
Joseph T. Gardemal III, CPA 
Managing Director 
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Presented By: 
1 
August 25, 2014 
Partner Firms: 
Pepper Hamilton LLP 
William R. Wagner 
Partner 
McGuireWoods LLP 
Dion W. Hayes 
Partner
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August 25, 2014 
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August 25, 2014 
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August 25, 2014 
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Partner Firm: 
6 
August 25, 2014 
Since its founding in 1834, McGuireWoods LLP has been a leading and well-respected presence in the 
practice of law. For more than 175 years, the firm has enhanced our capabilities to keep pace with our 
clients’ needs — both in the United States, as well as in the global marketplace. Today, the firm has 
more than 900 lawyers in 19 offices in the United States, United Kingdom, Brussels and elsewhere in 
Europe. 
Restructuring and Insolvency Department Overview 
Our restructuring and insolvency practice has 40 attorneys and offers a balanced mixture of 
transactional strength and litigation experience. We represent corporate debtors, secured creditors and 
unsecured creditors' committees, as well as lenders and trustees in all types of debt restructuring, 
litigation and bankruptcy reorganization proceedings, including out-of-court workouts. 
Representations range from large regional cases to those of national stature, and our practice extends 
across industry lines to include retail, transportation, real estate, manufacturing, telecommunications, 
and many other industries. Our clients include a variety of constituencies, including debtors in workouts 
and reorganizations, creditors’ committees, manufacturers and trade creditors, and financial institutions 
such as banks, hedge funds, private equity firms, bondholder committees and asset-based lenders. 
Major recent cases in which the firm has had either debtor or creditor engagements include Lehman 
Brothers, Inc., Circuit City, AMF Bowling, LandAmerica, MF Global, Enron, Adelphia, Tribune, 
ASARCO, and the Rothstein Ponzi scheme case.
Partner Firms: 
7 
August 25, 2014 
About Alvarez & Marsal 
Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) 
when conventional approaches are not enough to activate change. 
Privately-held since 1983, A&M is a leading global professional services firm that delivers 
performance improvement, turnaround management and business advisory services to 
organizations seeking to transform operations, catapult growth and accelerate results through 
decisive action. Our senior professionals are experienced operators, world-class consultants and 
industry veterans who draw upon the firm's restructuring heritage to help leaders turn change into 
a strategic business asset, manage risk and unlock value at every stage. 
Global Forensics and Disputes Overview 
Partner with the right expert team to navigate through a crisis or assist with a dispute. Alvarez & 
Marsal sets the standard for delivering results on critical matters. With an increase in the 
complexity of corporate investigations, regulatory enforcement actions, and high stakes litigation, 
that ability is more important than ever. From the boardroom to the court room, A&M professionals 
draw on their deep skills and experience in business investigations, litigation consulting, forensic 
technology, and expert testimony to provide clients with the solutions they seek to achieve their 
goals. 
Pepper Hamilton LLP is a multi-practice law firm with more than 500 lawyers 
nationally. The firm provides corporate, litigation and regulatory legal 
services to leading businesses, governmental entities, nonprofit 
organizations and individuals throughout the nation and the world. 
Our firm has grown from a two-person law office formed in 1890 in 
Philadelphia to a sophisticated, large law firm with a national and 
international practice. While much about Pepper Hamilton is new and 
different from its beginnings, we retain traditional values passed down 
through the decades: respect for the rule of law, pride in an excellent work 
product and commitment to the client's cause. Today, Pepper Hamilton is a 
diverse firm of men and women from a broad spectrum of backgrounds, 
united in these values. 
Start closer to the right answer.®We use the breadth of our practices and 
the depth of our experience to help clients solve problems and realize 
business goals.
Brief Speaker Bios: 
Dion W. Hayes 
Dion serves as chair of McGuireWoods’ 40-attorney restructuring and insolvency department. Since 1992, he has focused his practice 
on insolvency law and financial restructuring, including bankruptcy, out-of-court workouts, distressed asset acquisitions and 
recapitalizations, and related litigation. He is experienced in representing corporate debtors, official and unofficial committees of 
creditors or equity holders, asset acquirers, post-confirmation plan administrators, liquidating trustees, indenture trustees, senior 
lenders, bond holders, and other stakeholders, in bankruptcy courts and other courts throughout the United States. He has recently 
appeared in bankruptcy courts and other federal courts in Delaware, Florida, New York, Texas, and Virginia. He also has substantial 
cross-border insolvency experience. 
8 
August 25, 2014 
Joseph T. Gardemal III, CPA 
Joe Gardemal is a Managing Director with Alvarez & Marsal Global Forensic and Dispute Services in Washington, D.C. He is a 
Certified Public Accountant/Accredited in Business Valuation, a Certified Valuation Analyst, and is Certified in Distressed Business 
Valuation by the Association of Insolvency and Restructuring Advisors. Mr. Gardemal has over 25 years of experience in forensic 
accounting, auditing, investigations, and valuation and damages estimation in commercial litigation and bankruptcy matters. He has 
worked with clients in a wide variety of industries, including insurance and investments; auto manufacturing, distribution and retailing; 
defense and aerospace; satellite and cable television; financial institutions; education; and pharmaceuticals. He has provided expert 
testimony in these areas in U.S. State and Federal Courts and in international matters, and has worked on a large number of 
prominent bankruptcy-related matters, including Lehman Brothers.
Brief Speaker Bios: 
William R. Wagner 
William R. Wagner is a partner in the Financial Services Practice Group of Pepper Hamilton LLP, resident in the New York office. 
Mr. Wagner focuses his practice on complex international and domestic loan workouts, financial restructurings and distressed 
investments. He has extensive secured and unsecured bank financing experience, including real estate, aircraft, sports lending, 
acquisition finance, leasing, securitization, structured finance, swaps and derivatives. 
Mr. Wagner also represents investment and commercial banks, asset managers, funds and other strategic investors in trades of 
distressed and par-value loan obligations. He has extensive experience in both foreign and domestic trading markets ranging from 
individual loan trades to complex portfolio acquisitions and sales. 
9 
► For more information about the speakers, you can visit: http://theknowledgegroup.org/event_name/what-you-need-to-know-about-fraudulent-conveyance-law-in-2014-live-webcast/ 
August 25, 2014
Our panel of key thought leaders and practitioners will offer a discussion of the fundamentals 
as well as updates regarding the latest and significant issues surrounding this topic. This 
LIVE webcast aims to help you to avoid common pitfalls and risk issues surrounding 
Fraudulent Conveyance Law in 2014. 
This 2-hour webcast will discuss the following key topics: 
• New developments in fraudulent conveyance law in 2014 
• Emerging trends and recent cases 
• Financial expert aspects of insolvency and valuation issues in fraudulent 
conveyance litigation 
10 
August 25, 2014
Featured Speakers: 
11 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP 
SEGMENT 2: 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP 
Joe Gardemal 
Managing Director 
Alvarez & Marsal
Introduction 
Dion serves as chair of McGuireWoods’ 40-attorney restructuring and insolvency department. Since 1992, he has focused 
his practice on insolvency law and financial restructuring, including bankruptcy, out-of-court workouts, distressed asset 
acquisitions and recapitalizations, and related litigation. He is experienced in representing corporate debtors, official and 
unofficial committees of creditors or equity holders, asset acquirers, post-confirmation plan administrators, liquidating 
trustees, indenture trustees, senior lenders, bond holders, and other stakeholders, in bankruptcy courts and other courts 
throughout the United States. He has recently appeared in bankruptcy courts and other federal courts in Delaware, Florida, 
New York, Texas, and Virginia. He also has substantial cross-border insolvency experience. 
Dion received his JD from William & Mary Law School and his BA from the University of Virginia. He has been selected for 
inclusion in The Best Lawyers in America for Bankruptcy and Creditor/Debtor Rights, “Super Lawyers” for Bankruptcy & 
Creditor/Debtor Rights, Banking, Business Litigation, and the "Legal Elite" for Bankruptcy Law. 
12 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Gold v. First Tennessee Bank Nat’l Assn. (In re Taneja), 
743 F.3d 423 (4th Cir. 2014) 
13 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Taneja – Background 
• Vijay Taneja operated FMI, which originated home loans and sold them to investors (secondary 
purchasers) 
• FMI drew on lines of credit extended by ware-house lenders to fund the loans, which line of credit was 
replenished when FMI sold the loan 
• Beginning in 1999, FMI had difficulty selling the loans and began engaging in fraud 
– selling the same mortgage to several secondary purchasers 
– having other businesses controlled by Taneja serve as intermediaries 
14 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Taneja – Background (cont’d) 
• First Tennessee Bank provided FMI with a $15mm line of credit in July 2007 
• By Oct. 2007, FMI had drawn $12mm on the line of credit, and the bank suspended advances 
• In Nov. 2007, FMI explained it couldn’t sell the loans due to inadequate documentation resulting from 
the unexpected departure of its loan processor 
15 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Taneja – Background (cont’d) 
• In Jan. 2008, FMI stated it wanted to hold the loans until their value increased, suggested a “collateral 
swap,” and denied that any fraud was involved; the bank agreed to forbear 
• In April 2008, the bank learned the deeds securing its notes were not valid 
• In June 2008, Taneja and FMI filed for bankruptcy 
16 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Taneja – Good Faith Defense 
• The trustee brought suit under 11 U.S.C. § 548 seeking return of $4mm in allegedly fraudulent 
transfers 
• First Tennessee pled good faith as an affirmative defense 
• Sec. 548(c) provides: “a transferee… of such a transfer…that takes for value and in good faith… may 
retain any interest transferred… to the extent that such transferee or obligee gave value to the debtor 
in exchange for such transfer or obligation.” 
17 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Taneja – Good Faith Standard 
HELD: The bankruptcy court correctly applied the good faith standard from In re Nieves, 648 F.3d 232 
(4th Cir. 2011): 
• Under the subjective prong, “the honesty” and “state of mind” of the transferee are considered 
• Under the objective prong, the court is required to determine what the transferee knew or should 
have known taking into consideration the customary practices of the relevant industry 
18 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Introduction 
HELD: The bankruptcy court did not clearly err in finding that the bank was entitled to the good faith 
defense 
• Expert testimony was not required on the objective component of the defense; the evidentiary 
standard was satisfied with testimony from the bank’s employees 
• Delay in providing collateral documents was not a red flag—delays are typical in new relationships 
and the most vital document, the note, was always provided 
• Failure to sell the loans in the secondary market was not a red flag given that 2007-2008 was an 
“extraordinary time” for the warehouse lending industry 
19 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Taneja – Good Faith Outside the 4th Circuit 
The majority of courts apply an objective standard, looking to what the transferee objectively “knew or 
should have known” regarding the fraud 
• Hayes v. Palm Seedlings Partners-A (In re Agric. Research & Tech. Group, Inc.), 916 F.2d 528 (9th 
Cir. 1990); Brown v. Third Nat’l Bank (In re Sherman), 67 F.3d 1348 (8th Cir. 1995) 
Some courts apply the objective standard to a two-part test, examining: 
– whether the transferee had information that put it on inquiry notice of the transferor’s insolvency 
or of the fraudulent purpose behind the transfer; 
– If inquiry notice existed, whether the transferee demonstrated that a diligent investigation would 
not have led to discovery of the fraud 
• Christian Bros. High School Endowment v. Bayou No Leverage Fund LLC (In re Bayou Group, LLC), 
439 B.R. 284 (S.D.N.Y. 2010); Horton v. O’Cheskey (In re Am. Hous. Found.), 544 Fed. Appx. 516 
(5th Cir. 2013) 
20 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox Inc., et al. v. Kerr McGee Corp. 
(In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013) 
21 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox – Background 
• Oil and gas exploration company founded in 1929 
• By November 2005, Old Kerr-McGee had two businesses: 
(1) oil and gas exploration (“E&P”) 
($1.8B annual profit) 
(2) titanium dioxide ($108mm annual profit) 
22 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox – Background (cont’d) 
• Burdened by enormous legacy environmental and tort liabilities 
– 2,700 environmental sites 
– $160mm/yr on remediation 
• In 2000, Old Kerr-McGee began to plan transactions that would separate the E&P business from the 
legacy liabilities 
23 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox – Separation of the E&P Business 
• Effective Dec. 31, 2002: 
– New holding company formed (New Kerr-McGee) 
– Ownership interests in the E&P business transferred to new holding company 
– Old Kerr-McGee (which became Tronox) left with titanium dioxide business and all legacy 
liabilities 
• Separation finalized Nov. 28, 2005 through spinoff 
• Until separation, companies were consolidated and operations funded through centralized cash 
system 
24 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox – Chapter 11 Filing 
• Tronox filed for bankruptcy in Jan. 2009 
• Tronox filed a suit against New Kerr-McGee asserting, inter alia, claims for actual and constructive 
fraudulent transfers under the Okla. Uniform Fraudulent Transfer Act (UFTA) 
• Environmental authorities and tort plaintiffs agreed to accept as their bankruptcy distribution the 
proceeds from Tronox’s suit 
25 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox – Statute of Limitations Had Not Expired 
The Court rejected Defendants’ argument that the 4 year limitations period began to run from the internal 
reorganization in 2002, reasoning: 
1. Separation was not complete until 2005 
2. Tronox suffered no injury in 2002 
3. The 2002 transfers were part of a “single integrated scheme” 
4. As a matter of policy 
26 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox – Actual Fraud 
Held: The transfers of property that culminated in the spinoff were made with actual intent to hinder or 
delay creditors 
• The “obvious consequence” of the transfers was that the legacy creditors would not be able to claim 
against substantially all of the Kerr-McGee assets 
• Certain badges of fraud were also present 
27 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox – Badges of Fraud 
• Transfer was to an insider 
• Debtor retained possession or control of property transferred 
• Transfer was not disclosed or was concealed 
• Before transfer was made, debtor had been sued or threatened with suit 
• Transfer was for less than reasonably equivalent value 
• Debtor was or became insolvent as a consequence of transfer 
“Any one of these . . . badges of fraud may stamp the transaction as fraudulent.” 
28 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
Tronox – Burden of Proof 
Defendants failed to rebut the clear and convincing evidence that supported the Court’s finding of intent to 
hinder and delay the legacy creditors 
Defendants had not established: 
• A good faith belief that Tronox would be able to support the legacy liabilities 
• A “legitimate supervening purpose” for the transfer; although Defendants identified a legitimate 
business reason for separating the businesses, it had not identified a legitimate business reason for 
imposing all of the legacy liabilities on Tronox 
• That its conduct should be viewed as lawful management of the legacy liabilities 
29 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP
30 
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August 25, 2014 
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Introduction 
Joe Gardemal is a Managing Director with Alvarez & Marsal Global Forensic and Dispute Services in 
Washington, D.C. He is a Certified Public Accountant/Accredited in Business Valuation, a Certified 
Valuation Analyst, and is Certified in Distressed Business Valuation by the Association of Insolvency and 
Restructuring Advisors. Mr. Gardemal has over 25 years of experience in forensic accounting, auditing, 
investigations, and valuation and damages estimation in commercial litigation and bankruptcy matters. He 
has worked with clients in a wide variety of industries, including insurance and investments; auto 
manufacturing, distribution and retailing; defense and aerospace; satellite and cable television; financial 
institutions; education; and pharmaceuticals. He has provided expert testimony in these areas in U.S. 
State and Federal Courts and in international matters, and has worked on a large number of prominent 
bankruptcy-related matters, including Lehman Brothers. 
33 
August 25, 2014 
SEGMENT 2: 
Joe Gardemal 
Managing Director 
Alvarez & Marsal
CONTENTS 
I. Tronox Case Overview 
II. Forensic Accounting – Constructive Fraud 
III. Solvency Analysis – Balance Sheet Test 
IV. Valuation Of Assets Transferred 
34 
August 25, 2014 
SEGMENT 2: 
Joe Gardemal 
Managing Director 
Alvarez & Marsal
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Tronox Case Overview 
Kerr-McGee operated two core businesses: oil and gas exploration and production; and chemical production. 
History 
– Founded in 1929, Kerr-McGee operated various businesses, including wood-treating, uranium mining and 
processing, thorium processing, and ammonium perchlorate manufacturing. 
– By the early 2000s, Kerr-McGee had discontinued most of its historic business operations but remained 
responsible for massive legacy environmental and tort liabilities related to those businesses. 
– At that time, Kerr-McGee operated two core businesses: oil and gas exploration and production; and 
chemical production. 
Between 2002 and 2005, Kerr-McGee transferred the oil and gas assets to a “new” Kerr-McGee. 
Spun off the remaining assets (a small, cyclical chemical business with 85-odd years of legacy liabilities, which 
was re-named Tronox) in 2006. 
A few months later, Anadarko acquired Kerr-McGee (and the oil and gas business) for $18 billion. 
Meanwhile, as a result of the transactions, Tronox was rendered insolvent and unable to pay for its legacy 
liabilities, and ultimately filed for bankruptcy in 2009. 
35 
August 25, 2014 
SEGMENT 2: 
Cited from http://www2.epa.gov/enforcement/case-summary-settlement-agreement-anadarko-fraud-case-results-billions-environmental#fraud
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Tronox Case Overview 
Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013). 
The Bankruptcy Court held that: 
– Spinoff transaction that defendants orchestrated to free substantially all of their assets from 85 years 
of environmental and tort liabilities, while assigning such liabilities to undercapitalized debtors, was 
effected with actual intent to hinder or delay creditors; 
– Court did not have to conduct its ‘‘reasonably equivalent value’’ and ‘‘insolvency’’ analyses, for 
purposes of adjudicating constructive fraudulent transfer claims, on strict debtor-by-debtor basis; 
– Debtors’ ability to survive for several years following challenged transaction, and to complete initial 
public offering (IPO) and to issue $350 million in unsecured bond debt, was insufficient to establish 
their solvency at time of transaction. 
36 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Forensic Accounting 
Constructive Fraud 
37 
August 25, 2014 
SEGMENT 2: 
Joe Gardemal 
Managing Director 
Alvarez & Marsal
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Forensic Accounting – Badges of Fraud 
Badges of Fraud: Circumstances so commonly associated with fraudulent transfers that their presence gives rise 
to an inference of intent. 
Badges of fraud are not conclusive, but they “help to ‘focus the inquiry on the circumstances that suggest a 
conveyance was made with fraudulent intent..” 
The following factors supported the conclusion that the Defendants acted with actual intent to hinder or delay 
creditors: 
– Factor 1: The transfer or obligation was to an insider. 
– Factor 2: The debtor retained possession or control of the property transferred after the transfer. 
– Factor 3: The transfer or obligation was disclosed or concealed. 
– Factor 4: Before the transfer was made or obligation was incurred, the debtor had been sued or threatened 
with suit. 
– Factor 5: The transfer was of substantially all of the debtor’s assets. 
– Factors 8 & 9: Whether the consideration received by the debtor was reasonably equivalent to the value of 
the property conveyed and whether the debtor was or became insolvent as a consequence of the transfer. 
38 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Forensic Accounting – Constructive Fraud 
– a conveyance of an interest in property; 
– for less than reasonably equivalent value; 
– that rendered the transferor insolvent, inadequately capitalized, or unable to pay its debts as they 
39 
August 25, 2014 
SEGMENT 2: 
To prevail on constructive fraud, the plaintiff must prove: 
became due 
These requirements mirror Factors 8 and 9 in the Oklahoma UFTA’s badges of fraud. 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Solvency Analysis 
Balance Sheet Test 
40 
August 25, 2014 
SEGMENT 2: 
Joe Gardemal 
Managing Director 
Alvarez & Marsal
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Solvency Analysis – Balance Sheet Test 
Insolvency defined in Oklahoma UFTA and Bankruptcy Code 
The Oklahoma UFTA defines insolvency as follows for a non-partnership debtor: 
– A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair 
valuation. 
– A debtor who is generally not paying his debts as they become due is presumed to be insolvent… 
– Assets pursuant to the provisions of this section do not include property that has been transferred, 
concealed, or removed with intent to hinder, delay or defraud creditors or that has been transferred 
in a manner making the transfer voidable pursuant to the provisions of the Uniform Fraudulent 
Transfer Act. 
The Bankruptcy Code at § 101(32) defines insolvent, in relevant part, as follows: 
– With reference to an entity other than a partnership and a municipality, financial condition such that 
the sum of such entity’s debts is greater than all of such entity’s property, at a fair valuation. 
41 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Solvency Analysis – Balance Sheet Test 
The relevant analysis of solvency for fraudulent conveyance purposes in Tronox was a “balance sheet test,” examining 
whether debts in aggregate are greater than assets in the aggregate. 
The Public Market 
– Defendants’ reliance on the ‘‘market’’ and the fact that lenders loaned $450 million in senior secured debt and 
that Tronox was also able to sell into the market $350 million in bonds and $224.7 million in stock is 
unavailing… 
» The debt that Tronox issued was secured by all of the assets of all of the Tronox companies, and …would 
come first in any bankruptcy or liquidation of the enterprise. 
» The projections on which the IPO was based were inflated, sell-side projections…key numbers were 
imposed at the direction of Kerr–McGee’s chief financial officer. 
» Financial statement reserves for environmental liabilities are of no probative value in a solvency analysis. 
» The way the market might look at [these] legacy liabilities, certainly the way GAAP looks at them is different 
than the determination of a claim under… the Oklahoma UFTA. 
42 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Solvency Analysis – Balance Sheet Test 
The relevant analysis of solvency for fraudulent conveyance purposes in Tronox was a “balance sheet 
test,” examining whether debts in aggregate are greater than assets in the aggregate. 
Defendants’ Market Defense 
– Defendants assert, ‘‘In this trial, the enormous body of contemporaneous market evidence of 
solvency was far stronger than in VFB, Iridium and CarCo - all of which found for defendants on 
solvency.’’ 
– Defendants assert the evidence at trial established two critical bookends to the public market. 
» On the one hand is Apollo’s signed, fully-financed offer to purchase the Chemical Business, 
based on six months and millions of dollars in diligence. 
» On the other hand are the compelling, contemporaneous statements and actions of Tronox’s own 
officers and managers, including statements subject to the securities laws— all of which are 
consistent with the public market evidence of solvency. 
43 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Solvency Analysis – Balance Sheet Test 
The relevant analysis of solvency for fraudulent conveyance purposes in Tronox was a “balance sheet 
test,” examining whether debts in aggregate are greater than assets in the aggregate. 
The Allegedly Sophisticated Market Players 
– Defendants rely on Apollo…[and] on the participants in the market who performed independent due 
diligence that extended well beyond public information. 
» However, these ‘‘market participants’’ had interests which were unique and caused them to be 
hardly representative of ‘‘the market.’’ 
» The Secured Lenders could be confident that they would be paid before any legacy liability 
claims—as was indeed the case in Tronox’s bankruptcy. 
» Apollo did not make a ‘‘final and binding’’ offer for Tronox of $1.3 billion. 
Statements and Actions of Tronox Management 
44 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Solvency Analysis – Balance Sheet Test 
The relevant analysis of solvency for fraudulent conveyance purposes in Tronox was a “balance sheet 
test,” examining whether debts in aggregate are greater than assets in the aggregate. 
Debts at the Date of the IPO “at a Fair Valuation” 
– Under the UFTA, there is no substitute for performing an analysis of Tronox’s assets as at the date 
of the IPO and measuring them against its liabilities, both at a fair value…this case is about 
environmental liabilities. 
– Plaintiffs’ Environmental Expert’s analysis is the only comprehensive valuation in the vast record of 
this case of Tronox’s environmental liabilities. 
– Defendants’ failure, at any time, either before or after this case was filed, to come forward with a 
comprehensive analysis of the environmental liabilities that Kerr–McGee had imposed on Tronox, is 
a major failure of proof. 
45 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Solvency Analysis – Unreasonably Small Capital/Inability to Pay Debts 
Unreasonably Small Capital Test 
– The Court accepted the testimony of Plaintiffs’ expert that Tronox’s projections were unreasonable 
and that its capital was inadequate, “burdened as it was by the legacy liabilities.” 
Inability to Pay Debts as They Come Due 
– The Court found that Plaintiffs had met their burden of proof, in part because “Defendants never 
even performed an analysis of Tronox’s ability to satisfy the legacy liabilities.” 
46 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Valuation Analysis 
47 
August 25, 2014 
SEGMENT 2: 
Joe Gardemal 
Managing Director 
Alvarez & Marsal
Valuation Analysis 
Income Approaches include Discounted Cash Flow and Capitalization of Earnings; 
Market Approaches include Comparable Company Analysis and Comparable Transaction Analysis. 
In this case, standard approaches in determining business enterprise value (BEV) of assets transferred 
include: 
– A discounted cash flow analysis: Under a DCF, the company's debt-free cash flow is projected 
over a period of time until such time that the company reaches a stabilized level of growth. 
– A comparable company analysis: Publicly-traded companies with similar operating characteristics 
that are in the same or similar industry as the target company to be valued are identified. Based on 
the identified companies, various value multiples are derived and applied to the target company. 
– A comparable transaction analysis: Similar to the comparable company analysis, value indicators 
are used to estimate the values of the target company. 
48 
August 25, 2014 
SEGMENT 2: 
Joe Gardemal 
Managing Director 
Alvarez & Marsal
Valuation Analysis – Key Issues 
Projected pricing of titanium dioxide 
Valuation of legacy environmental liabilities 
– Expert testimony 
– Third-party due diligence 
49 
August 25, 2014 
SEGMENT 2: 
Joe Gardemal 
Managing Director 
Alvarez & Marsal
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Valuation Analysis 
DCF determines BEV by examining the earning capacity of the enterprise over a reasonable period of time, adds a 
residual or terminal value to extend the analysis beyond the chosen period, and then discounts the result to present 
value. 
Discounted Cash Flow Analysis: 
– Defendant expert’s calculation of $1.7 billion was not persuasive. 
– Plaintiff’s expert did not start his discounted cash flow analysis with the company’s internal projections. He 
adjusted them downwards for several reasons including: 
» The financial projections in Tronox’s S–1 were inflated ‘‘sell-side’’ projections based on overly optimistic 
assumptions. 
» The IPO projections were unrealistic when compared with Tronox’s historical performance. 
» Tronox TiO2 business peaked early in 2005 and was on the downturn by the time of the IPO in November. 
– Defendant’s expert simply used the management projections…without subjecting them to any analysis or 
considering the chemical business’ historical performance. 
50 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Valuation Analysis 
The comparable company analysis attempts to determine value by reference to the value of companies in 
the same line of business. 
Comparable Company Analysis: 
– Defendant expert’s conclusion that Tronox’s BEV based on the comparable company analysis was 
of $1.48 to $1.6 billion was not persuasive. 
– Defendants’ expert was flawed by his choice of companies for comparative purposes…His list of 
comparable companies included: 
» DuPont, vastly larger and more diversified than Tronox; 
» Diversified companies such as Cabot Corp. and Eastman Chemical; and 
» Specialty chemical companies (such as Hercules) which typically trade at a higher multiple than 
commodity chemical companies like Tronox. 
51 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Valuation Analysis 
The comparable transaction analysis attempts to determine value by reference to the merger and acquisition 
activity of companies in the same line of business. 
Comparable Transaction Analysis: 
– Defendants’ expert analysis…resulted in a BEV of $1.5 billion, but this analysis was flawed by weaknesses 
in the third parties’ projections. 
– Defendants’ expert included transactions involving: 
» An Indian fertilizer company 
» A Swiss company making waterproofing materials and parts for car manufacturers, and 
» A company making foam-related products for diapers and adult incontinence products. 
– Defendants’ expert purported to confirm his results by using what he calculated as ‘‘third-party projections’’ 
of Tronox’s future income instead of Tronox’s internal projections. 
52 
August 25, 2014 
SEGMENT 2: 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
Joe Gardemal 
Managing Director 
Alvarez & Marsal 
Valuation Analysis (in Billions) 
53 
August 25, 2014 
SEGMENT 2: 
Approach Plaintiff Defendant Court 
Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013). 
Assets 
Discounted Cash Flow $1.01 $1.70 
Comparable Company $1.00 $1.54 
Comparable Transaction $1.10 $1.70 
Average/Conclusion $1.03 $1.70 $1.03 
Non-Operating Assets $0.19 $0.11 $0.19 
Total Assets $1.22 $1.81 $1.22 
Liabilities $2.17 $1.02 $2.07 
Net Assets -$0.95 $0.79 -$0.85
Introduction 
William R. Wagner is a partner in the Financial Services Practice Group of Pepper Hamilton LLP, resident in the New York 
office. 
Mr. Wagner focuses his practice on complex international and domestic loan workouts, financial restructurings and 
distressed investments. He has extensive secured and unsecured bank financing experience, including real estate, aircraft, 
sports lending, acquisition finance, leasing, securitization, structured finance, swaps and derivatives. 
Mr. Wagner also represents investment and commercial banks, asset managers, funds and other strategic investors in 
trades of distressed and par-value loan obligations. He has extensive experience in both foreign and domestic trading 
markets ranging from individual loan trades to complex portfolio acquisitions and sales. 
54 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Section 548 - Federal Cause of Action for Avoidance of Fraudulent Transfers 
• 548(a)(1)(A) – Intentional Fraud 
− Permits the trustee to avoid any transfers made or obligations incurred by the debtor within two 
years of the petition date where there was “actual intent to hinder, delay or defraud” any entity to 
which the debtor was or became indebted at the time of or after the transfer or obligation. 
55 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Section 548 - Federal Cause of Action for Avoidance of Fraudulent Transfer 
• 548(a)(1)(B) – Constructive Fraud 
− Permits the trustee to avoid transfers or obligations where the debtor received “less than 
reasonably equivalent value in exchange” and either: 
• was insolvent or became insolvent; 
• was left with unreasonably small capital; 
• intended to incur or believed it would incur debts beyond its ability to pay; or 
• made the transfer or incurred the obligation to or for the benefit of an insider, under an 
employment contract and not in the ordinary course of business. 
56 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Section 544(b) Avoidance Powers 
• Provides that the trustee “may avoid any transfer of an interest of the debtor in property or any 
obligation incurred by the debtor that is voidable under applicable law” by a creditor with an allowable 
unsecured claim 
• Empowers the trustee to utilize any legal theory of recovery that a creditor could assert under state 
law, such as a state’s version of the Uniform Fraudulent Transfer Act or the Uniform Fraudulent 
Conveyance Act or other applicable law 
− Creditors of the debtor may also have a cause of action under state fraudulent transfer law 
57 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Section 546 – Safe Harbor Provisions 
• Notwithstanding the trustee’s avoidance powers, including under sections 544 and 548, the trustee 
cannot avoid certain types of transactions in the financial markets made by or to various enumerated 
participants, unless the transaction is the product of actual fraud under section 548(a)(1)(A): 
− Section 546(e) – protects margin payments and settlement payments 
− Section 546(f) – protects repurchase agreements 
− Section 546(g) – protects swap agreements 
58 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Recent S.D.N.Y. Jurisprudence 
ISSUE 
• Do section 546’s safe harbor provisions bar fraudulent transfer claims under state law related to the 
financial transactions otherwise protected from avoidance under the Bankruptcy Code’s safe harbor 
provisions? 
59 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Recent S.D.N.Y. Jurisprudence 
ANSWER 
• Three recent cases have created a split of authority in the Southern District of New York: 
− Whyte v. Barclays Bank PLC, 494 B.R. 196 (S.D.N.Y. 2013) 
− In re Tribune Fraudulent Conveyance Litig., 499 B.R. 310 (S.D.N.Y. 2013) 
− Weisfelner v. Fund 1 (In re Lyondell Chemical Co.), 503 B.R. 348 (Bankr. S.D.N.Y. 2014) 
60 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Barclays Bank (Judge Rakoff) 
• Background 
− a post-confirmation litigation trust was assigned “any and all” of certain debtors’ and creditors’ 
claims 
− the litigation trustee sought to avoid a pre-petition swap transaction under state fraudulent transfer 
law 
− the trustee tried to get around the safe harbor for swap transactions under section 546(g) by 
arguing that she was not pursuing it under section 544, but rather as assignee of the creditor 
claims assigned to the trust  since section 546(g) only applies to estate representatives 
exercising federal avoidance powers, it should not apply to claims asserted by creditors 
61 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Barclays Bank (Judge Rakoff) 
• Holding 
− section 546(g) implicitly preempts state law fraudulent conveyance actions seeking to avoid swap 
transactions 
− permitting a trustee to avoid a swap transaction by a state fraudulent conveyance action would 
stand as a major obstacle to the purposes and objectives of Congress in passing section 546(g) 
− the safe harbors were intended to stabilize the financial markets in the event of a major bankruptcy 
in the industry, and the “facial breadth of these provisions, and the corresponding legislative 
history, make plain that Congress intended to place swap transactions totally beyond the inherently 
destabilizing effects of a bankruptcy and its attendant litigation.” 
62 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Tribune (Judge Sullivan) 
• Background 
− the Creditors’ Committee (succeeded post-confirmation by a litigation trust) and individual creditors 
of the debtor sought, by separate actions in more than twenty state and federal courts, to avoid as 
fraudulent transfers funds distributed to individuals and entities bought out in the course of a pre-petition 
leveraged buyout of the debtor 
− the Committee sought to avoid the distributions as intentionally fraudulent transfers under section 
548(a)(1)(A), while the individual creditor actions sought avoidance under state law 
− the defendants argued that the individual creditors’ claims under state law were prohibited under 
section 546(e)’s safe harbor for settlement payments, and cited Barclays Bank to argue that 
Congress impliedly preempted such claims by enacting section 546(e) because the claims would 
frustrate the purpose of the safe harbor to provide certainty and stability to securities transactions 
63 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Tribune (Judge Sullivan) 
• Holding 
− section 546(e) addresses its prohibition only to the bankruptcy trustee, and Congress did not 
impliedly preempt creditors’ state law constructive fraud claims 
− Congress did not enact section 546(e) to protect market stability to the exclusion of all other 
policies, and other sections of the Code show it knew how to expressly preempt creditor actions 
where desired 
− Barclays Bank was distinguishable because unlike the individual creditors in Tribune, there the 
litigation trust served in the capacity of both the bankruptcy trustee and the representative of 
outside creditors, and therefore could not pursue as the creditors’ representative an avoidance 
claim it was barred from pursuing as the trustee 
64 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Lyondell (Judge Gerber) 
• Background 
− a Creditors’ Trust was assignee under the debtor’s reorganization plan of claims by certain classes 
of creditors, and sought to avoid distributions received by the debtor’s former shareholders in a 
prepetition leveraged buyout  the claims were asserted solely under state law 
− the defendants argued that (i) section 546(e)’s safe harbor for settlement payments provided a 
substantive defense to the state law claims just as if they had been brought under the Code, and 
(ii) the failure of states to provide a similar safe harbor in their constructive fraudulent transfer 
avoidance statutes rendered the statutes preempted by section 546(e) 
65 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Lyondell (Judge Gerber) 
• Holding 
− followed Tribune in holding that the plain language of section 546(e) renders it inapplicable to state 
law claims brought on behalf of individual creditors 
− also followed Tribune in finding that Congress did not impliedly preempt state fraudulent transfer 
law through section 546(e) because the Bankruptcy Code entails an array of policy decisions in 
addition to protecting markets from systemic risk, including the avoidance of insolvent entities’ 
transfers where they are at the expense of the creditor community and the absolute priority rule 
− Court drew a distinction between protecting financial markets and protecting investors in public 
markets (“Nothing in the legislative history of the existing law evidences a desire to protect 
individual investors who are beneficial recipients of insolvents’ assets.”). 
− Court found Barclays Bank both distinguishable and its analysis “to be less thorough than that of 
Tribune, and … flawed.” 
66 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Outlook for Safe Harbor Defenses in S.D.N.Y. 
• Barclays Bank remains good law and offers some support for the argument that state law constructive 
fraud claims are preempted by section 546’s safe harbor provisions where one of the enumerated 
transactions is implicated 
• HOWEVER, the tide seems to be turning in light of Tribune and Lyondell, which are both more recent 
than Barclays Bank and either distinguish or criticize its reasoning 
67 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Outlook for Safe Harbor Defenses in S.D.N.Y. 
• the current state of play may be that while there is a split of authority in the district, future courts are 
more likely to follow Judge Sullivan and Judge Gerber in finding that section 546 does not apply to 
state law fraudulent transfer claims and does not preempt them 
• Note that both Barclays Bank and Tribune have been appealed to the Second Circuit and will be 
heard in tandem, so stay tuned for a resolution 
68 
August 25, 2014 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
Q&A: 
► You may ask a question at anytime throughout the presentation today. Simply click on the question mark icon located on the floating tool bar on the bottom right side of your screen. Type 
your question in the box that appears and click send. 
► Questions will be answered in the order they are received. 
69 
August 25, 2014 
SEGMENT 1: 
Dion W. Hayes 
Partner 
McGuireWoods LLP 
SEGMENT 2: 
Dion W. Hayes 
Partner 
McGuireWoods LLP 
SEGMENT 3: 
William R. Wagner 
Partner 
Pepper Hamilton LLP
70 
August 25, 2014 
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What You Need to Know About Fraudulent Conveyance Law in 2014 LIVE Webcast

  • 1. Speaker Firms and Organization: Alvarez & Marsal Joseph T. Gardemal III, CPA Managing Director Thank you for logging into today’s event. Please note we are in standby mode. All Microphones will be muted until the event starts. We will be back with speaker instructions @ 11:55am. Any Questions? Please email: Info@knowledgecongress.org Group Registration Policy Please note ALL participants must be registered or they will not be able to access the event. If you have more than one person from your company attending, you must fill out the group registration form. We reserve the right to disconnect any unauthorized users from this event and to deny violators admission to future events. To obtain a group registration please send a note to info@knowledgecongress.org or call 646.202.9344. Presented By: 1 August 25, 2014 Partner Firms: Pepper Hamilton LLP William R. Wagner Partner McGuireWoods LLP Dion W. Hayes Partner
  • 2.  If you experience any technical difficulties during today’s WebEx session, please contact our Technical Support @ 866-779-3239. 2  Follow us on Twitter, that’s @Know_Group to receive updates for this event as well as other news and pertinent info.  You may ask a question at anytime throughout the presentation today via the chat window on the lower right hand side of your August 25, 2014 screen. Questions will be aggregated and addressed during the Q&A segment.  Please note, this call is being recorded for playback purposes.  If anyone was unable to log in to the online webcast and needs to download a copy of the PowerPoint presentation for today’s event, please send an email to: info@knowledgecongress.org. If you’re already logged in to the online webcast, we will post a link to download the files shortly.  If you are listening on a laptop, you may need to use headphones as some laptops speakers are not sufficiently amplified enough to hear the presentations. If you do not have headphones and cannot hear the webcast send an email to info@knowledgecongress.org and we will send you the dial in phone number.
  • 3.  About an hour or so after the event, you'll be sent a survey via email asking you for your feedback on your experience with this event today - it's designed to take less than two minutes to complete, and it helps us to understand how to wisely invest your time in future events. Your feedback is greatly appreciated. If you are applying for continuing education credit, completions of the surveys are mandatory as per your state boards and bars. 6 secret words (3 for each credit hour) will be given throughout the presentation. We will ask you to fill these words into the survey as proof of your attendance. Please stay tuned for the secret word.  Speakers, I will be giving out the secret words at randomly selected times. I may have to break into your presentation briefly to read 3 August 25, 2014 the secret word. Pardon the interruption.
  • 4. 4 August 25, 2014 Welcome to the Knowledge Group Unlimited Subscription Programs. We have Two Options Available for You: FREE UNLIMITED: This program is free of charge with no further costs or obligations. It includes:  Unlimited access to over 15,000 pages of course material from all Knowledge Group Webcasts.  Subscribers to this program can download any slides, white papers, or supplemental material covered during all live webcasts.  50% discount for purchase of all Live webcasts and downloaded recordings. PAID UNLIMITED: Our most comprehensive and cost-effective plan, for a one-time fee:  Access to all LIVE Webcasts (Normally $199 to $349 for each event without a subscription). Including: Bring-a-Friend – Invite a client or associate outside your firm to attend for FREE. Sign up for as many webcasts as you wish.  Access to all of Recorded/Archived Events & Course Material includes 1,500+ hours of audio material (Normally $299 for each event without a subscription).  Free CLE/CPE/CE Processing (Normally $49 Per Course without a subscription).  Access to over 15,000 pages of course material from Knowledge Group Webcasts.  Ability to invite a guest of your choice to attend any live webcast Free of charge (Exclusive benefit only available for PAID UNLIMITED subscribers).  6 Month Subscription is $299 with No Additional Fees Other options are available.  Special Offer: Sign up today and add 2 of your colleagues to your plan for free Check the “Triple Play” box on the sign-up sheet contained in the link below. https://gkc.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_157964
  • 5. 5 August 25, 2014 Knowledge Group UNLIMITED PAID Subscription Programs Pricing: Individual Subscription Fees: (2 Options) Semi-Annual: $299 one-time fee for a 6 month subscription with unlimited access to all webcasts, recordings, and materials. Annual: $499 one-time fee for a 12 month unlimited subscription with unlimited access to all webcasts, recordings, and materials. Group plans are available. See the registration form for details. Best ways to sign up: 1. Fill out the sign up form attached to the post conference survey email. 2. Sign up online by clicking the link contained in the post conference survey email. 3. Click the link below or the one we just posted in the chat window to the right. https://gkc.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_157964 Discounts: Enroll today and you will be eligible for the “Triple Play” program and 3% off if you pay by credit card. Also we will waive the $49 CLE/CPE processing fee for today’s conference. See the form attached to the post conference survey email for details. Questions: Send an email to: info@knowledgecongress.org with “Unlimited” in the subject.
  • 6. Partner Firm: 6 August 25, 2014 Since its founding in 1834, McGuireWoods LLP has been a leading and well-respected presence in the practice of law. For more than 175 years, the firm has enhanced our capabilities to keep pace with our clients’ needs — both in the United States, as well as in the global marketplace. Today, the firm has more than 900 lawyers in 19 offices in the United States, United Kingdom, Brussels and elsewhere in Europe. Restructuring and Insolvency Department Overview Our restructuring and insolvency practice has 40 attorneys and offers a balanced mixture of transactional strength and litigation experience. We represent corporate debtors, secured creditors and unsecured creditors' committees, as well as lenders and trustees in all types of debt restructuring, litigation and bankruptcy reorganization proceedings, including out-of-court workouts. Representations range from large regional cases to those of national stature, and our practice extends across industry lines to include retail, transportation, real estate, manufacturing, telecommunications, and many other industries. Our clients include a variety of constituencies, including debtors in workouts and reorganizations, creditors’ committees, manufacturers and trade creditors, and financial institutions such as banks, hedge funds, private equity firms, bondholder committees and asset-based lenders. Major recent cases in which the firm has had either debtor or creditor engagements include Lehman Brothers, Inc., Circuit City, AMF Bowling, LandAmerica, MF Global, Enron, Adelphia, Tribune, ASARCO, and the Rothstein Ponzi scheme case.
  • 7. Partner Firms: 7 August 25, 2014 About Alvarez & Marsal Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) when conventional approaches are not enough to activate change. Privately-held since 1983, A&M is a leading global professional services firm that delivers performance improvement, turnaround management and business advisory services to organizations seeking to transform operations, catapult growth and accelerate results through decisive action. Our senior professionals are experienced operators, world-class consultants and industry veterans who draw upon the firm's restructuring heritage to help leaders turn change into a strategic business asset, manage risk and unlock value at every stage. Global Forensics and Disputes Overview Partner with the right expert team to navigate through a crisis or assist with a dispute. Alvarez & Marsal sets the standard for delivering results on critical matters. With an increase in the complexity of corporate investigations, regulatory enforcement actions, and high stakes litigation, that ability is more important than ever. From the boardroom to the court room, A&M professionals draw on their deep skills and experience in business investigations, litigation consulting, forensic technology, and expert testimony to provide clients with the solutions they seek to achieve their goals. Pepper Hamilton LLP is a multi-practice law firm with more than 500 lawyers nationally. The firm provides corporate, litigation and regulatory legal services to leading businesses, governmental entities, nonprofit organizations and individuals throughout the nation and the world. Our firm has grown from a two-person law office formed in 1890 in Philadelphia to a sophisticated, large law firm with a national and international practice. While much about Pepper Hamilton is new and different from its beginnings, we retain traditional values passed down through the decades: respect for the rule of law, pride in an excellent work product and commitment to the client's cause. Today, Pepper Hamilton is a diverse firm of men and women from a broad spectrum of backgrounds, united in these values. Start closer to the right answer.®We use the breadth of our practices and the depth of our experience to help clients solve problems and realize business goals.
  • 8. Brief Speaker Bios: Dion W. Hayes Dion serves as chair of McGuireWoods’ 40-attorney restructuring and insolvency department. Since 1992, he has focused his practice on insolvency law and financial restructuring, including bankruptcy, out-of-court workouts, distressed asset acquisitions and recapitalizations, and related litigation. He is experienced in representing corporate debtors, official and unofficial committees of creditors or equity holders, asset acquirers, post-confirmation plan administrators, liquidating trustees, indenture trustees, senior lenders, bond holders, and other stakeholders, in bankruptcy courts and other courts throughout the United States. He has recently appeared in bankruptcy courts and other federal courts in Delaware, Florida, New York, Texas, and Virginia. He also has substantial cross-border insolvency experience. 8 August 25, 2014 Joseph T. Gardemal III, CPA Joe Gardemal is a Managing Director with Alvarez & Marsal Global Forensic and Dispute Services in Washington, D.C. He is a Certified Public Accountant/Accredited in Business Valuation, a Certified Valuation Analyst, and is Certified in Distressed Business Valuation by the Association of Insolvency and Restructuring Advisors. Mr. Gardemal has over 25 years of experience in forensic accounting, auditing, investigations, and valuation and damages estimation in commercial litigation and bankruptcy matters. He has worked with clients in a wide variety of industries, including insurance and investments; auto manufacturing, distribution and retailing; defense and aerospace; satellite and cable television; financial institutions; education; and pharmaceuticals. He has provided expert testimony in these areas in U.S. State and Federal Courts and in international matters, and has worked on a large number of prominent bankruptcy-related matters, including Lehman Brothers.
  • 9. Brief Speaker Bios: William R. Wagner William R. Wagner is a partner in the Financial Services Practice Group of Pepper Hamilton LLP, resident in the New York office. Mr. Wagner focuses his practice on complex international and domestic loan workouts, financial restructurings and distressed investments. He has extensive secured and unsecured bank financing experience, including real estate, aircraft, sports lending, acquisition finance, leasing, securitization, structured finance, swaps and derivatives. Mr. Wagner also represents investment and commercial banks, asset managers, funds and other strategic investors in trades of distressed and par-value loan obligations. He has extensive experience in both foreign and domestic trading markets ranging from individual loan trades to complex portfolio acquisitions and sales. 9 ► For more information about the speakers, you can visit: http://theknowledgegroup.org/event_name/what-you-need-to-know-about-fraudulent-conveyance-law-in-2014-live-webcast/ August 25, 2014
  • 10. Our panel of key thought leaders and practitioners will offer a discussion of the fundamentals as well as updates regarding the latest and significant issues surrounding this topic. This LIVE webcast aims to help you to avoid common pitfalls and risk issues surrounding Fraudulent Conveyance Law in 2014. This 2-hour webcast will discuss the following key topics: • New developments in fraudulent conveyance law in 2014 • Emerging trends and recent cases • Financial expert aspects of insolvency and valuation issues in fraudulent conveyance litigation 10 August 25, 2014
  • 11. Featured Speakers: 11 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP SEGMENT 2: SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP Joe Gardemal Managing Director Alvarez & Marsal
  • 12. Introduction Dion serves as chair of McGuireWoods’ 40-attorney restructuring and insolvency department. Since 1992, he has focused his practice on insolvency law and financial restructuring, including bankruptcy, out-of-court workouts, distressed asset acquisitions and recapitalizations, and related litigation. He is experienced in representing corporate debtors, official and unofficial committees of creditors or equity holders, asset acquirers, post-confirmation plan administrators, liquidating trustees, indenture trustees, senior lenders, bond holders, and other stakeholders, in bankruptcy courts and other courts throughout the United States. He has recently appeared in bankruptcy courts and other federal courts in Delaware, Florida, New York, Texas, and Virginia. He also has substantial cross-border insolvency experience. Dion received his JD from William & Mary Law School and his BA from the University of Virginia. He has been selected for inclusion in The Best Lawyers in America for Bankruptcy and Creditor/Debtor Rights, “Super Lawyers” for Bankruptcy & Creditor/Debtor Rights, Banking, Business Litigation, and the "Legal Elite" for Bankruptcy Law. 12 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 13. Gold v. First Tennessee Bank Nat’l Assn. (In re Taneja), 743 F.3d 423 (4th Cir. 2014) 13 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 14. Taneja – Background • Vijay Taneja operated FMI, which originated home loans and sold them to investors (secondary purchasers) • FMI drew on lines of credit extended by ware-house lenders to fund the loans, which line of credit was replenished when FMI sold the loan • Beginning in 1999, FMI had difficulty selling the loans and began engaging in fraud – selling the same mortgage to several secondary purchasers – having other businesses controlled by Taneja serve as intermediaries 14 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 15. Taneja – Background (cont’d) • First Tennessee Bank provided FMI with a $15mm line of credit in July 2007 • By Oct. 2007, FMI had drawn $12mm on the line of credit, and the bank suspended advances • In Nov. 2007, FMI explained it couldn’t sell the loans due to inadequate documentation resulting from the unexpected departure of its loan processor 15 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 16. Taneja – Background (cont’d) • In Jan. 2008, FMI stated it wanted to hold the loans until their value increased, suggested a “collateral swap,” and denied that any fraud was involved; the bank agreed to forbear • In April 2008, the bank learned the deeds securing its notes were not valid • In June 2008, Taneja and FMI filed for bankruptcy 16 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 17. Taneja – Good Faith Defense • The trustee brought suit under 11 U.S.C. § 548 seeking return of $4mm in allegedly fraudulent transfers • First Tennessee pled good faith as an affirmative defense • Sec. 548(c) provides: “a transferee… of such a transfer…that takes for value and in good faith… may retain any interest transferred… to the extent that such transferee or obligee gave value to the debtor in exchange for such transfer or obligation.” 17 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 18. Taneja – Good Faith Standard HELD: The bankruptcy court correctly applied the good faith standard from In re Nieves, 648 F.3d 232 (4th Cir. 2011): • Under the subjective prong, “the honesty” and “state of mind” of the transferee are considered • Under the objective prong, the court is required to determine what the transferee knew or should have known taking into consideration the customary practices of the relevant industry 18 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 19. Introduction HELD: The bankruptcy court did not clearly err in finding that the bank was entitled to the good faith defense • Expert testimony was not required on the objective component of the defense; the evidentiary standard was satisfied with testimony from the bank’s employees • Delay in providing collateral documents was not a red flag—delays are typical in new relationships and the most vital document, the note, was always provided • Failure to sell the loans in the secondary market was not a red flag given that 2007-2008 was an “extraordinary time” for the warehouse lending industry 19 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 20. Taneja – Good Faith Outside the 4th Circuit The majority of courts apply an objective standard, looking to what the transferee objectively “knew or should have known” regarding the fraud • Hayes v. Palm Seedlings Partners-A (In re Agric. Research & Tech. Group, Inc.), 916 F.2d 528 (9th Cir. 1990); Brown v. Third Nat’l Bank (In re Sherman), 67 F.3d 1348 (8th Cir. 1995) Some courts apply the objective standard to a two-part test, examining: – whether the transferee had information that put it on inquiry notice of the transferor’s insolvency or of the fraudulent purpose behind the transfer; – If inquiry notice existed, whether the transferee demonstrated that a diligent investigation would not have led to discovery of the fraud • Christian Bros. High School Endowment v. Bayou No Leverage Fund LLC (In re Bayou Group, LLC), 439 B.R. 284 (S.D.N.Y. 2010); Horton v. O’Cheskey (In re Am. Hous. Found.), 544 Fed. Appx. 516 (5th Cir. 2013) 20 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 21. Tronox Inc., et al. v. Kerr McGee Corp. (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013) 21 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 22. Tronox – Background • Oil and gas exploration company founded in 1929 • By November 2005, Old Kerr-McGee had two businesses: (1) oil and gas exploration (“E&P”) ($1.8B annual profit) (2) titanium dioxide ($108mm annual profit) 22 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 23. Tronox – Background (cont’d) • Burdened by enormous legacy environmental and tort liabilities – 2,700 environmental sites – $160mm/yr on remediation • In 2000, Old Kerr-McGee began to plan transactions that would separate the E&P business from the legacy liabilities 23 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 24. Tronox – Separation of the E&P Business • Effective Dec. 31, 2002: – New holding company formed (New Kerr-McGee) – Ownership interests in the E&P business transferred to new holding company – Old Kerr-McGee (which became Tronox) left with titanium dioxide business and all legacy liabilities • Separation finalized Nov. 28, 2005 through spinoff • Until separation, companies were consolidated and operations funded through centralized cash system 24 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 25. Tronox – Chapter 11 Filing • Tronox filed for bankruptcy in Jan. 2009 • Tronox filed a suit against New Kerr-McGee asserting, inter alia, claims for actual and constructive fraudulent transfers under the Okla. Uniform Fraudulent Transfer Act (UFTA) • Environmental authorities and tort plaintiffs agreed to accept as their bankruptcy distribution the proceeds from Tronox’s suit 25 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 26. Tronox – Statute of Limitations Had Not Expired The Court rejected Defendants’ argument that the 4 year limitations period began to run from the internal reorganization in 2002, reasoning: 1. Separation was not complete until 2005 2. Tronox suffered no injury in 2002 3. The 2002 transfers were part of a “single integrated scheme” 4. As a matter of policy 26 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 27. Tronox – Actual Fraud Held: The transfers of property that culminated in the spinoff were made with actual intent to hinder or delay creditors • The “obvious consequence” of the transfers was that the legacy creditors would not be able to claim against substantially all of the Kerr-McGee assets • Certain badges of fraud were also present 27 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 28. Tronox – Badges of Fraud • Transfer was to an insider • Debtor retained possession or control of property transferred • Transfer was not disclosed or was concealed • Before transfer was made, debtor had been sued or threatened with suit • Transfer was for less than reasonably equivalent value • Debtor was or became insolvent as a consequence of transfer “Any one of these . . . badges of fraud may stamp the transaction as fraudulent.” 28 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
  • 29. Tronox – Burden of Proof Defendants failed to rebut the clear and convincing evidence that supported the Court’s finding of intent to hinder and delay the legacy creditors Defendants had not established: • A good faith belief that Tronox would be able to support the legacy liabilities • A “legitimate supervening purpose” for the transfer; although Defendants identified a legitimate business reason for separating the businesses, it had not identified a legitimate business reason for imposing all of the legacy liabilities on Tronox • That its conduct should be viewed as lawful management of the legacy liabilities 29 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP
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  • 33. Introduction Joe Gardemal is a Managing Director with Alvarez & Marsal Global Forensic and Dispute Services in Washington, D.C. He is a Certified Public Accountant/Accredited in Business Valuation, a Certified Valuation Analyst, and is Certified in Distressed Business Valuation by the Association of Insolvency and Restructuring Advisors. Mr. Gardemal has over 25 years of experience in forensic accounting, auditing, investigations, and valuation and damages estimation in commercial litigation and bankruptcy matters. He has worked with clients in a wide variety of industries, including insurance and investments; auto manufacturing, distribution and retailing; defense and aerospace; satellite and cable television; financial institutions; education; and pharmaceuticals. He has provided expert testimony in these areas in U.S. State and Federal Courts and in international matters, and has worked on a large number of prominent bankruptcy-related matters, including Lehman Brothers. 33 August 25, 2014 SEGMENT 2: Joe Gardemal Managing Director Alvarez & Marsal
  • 34. CONTENTS I. Tronox Case Overview II. Forensic Accounting – Constructive Fraud III. Solvency Analysis – Balance Sheet Test IV. Valuation Of Assets Transferred 34 August 25, 2014 SEGMENT 2: Joe Gardemal Managing Director Alvarez & Marsal
  • 35. Joe Gardemal Managing Director Alvarez & Marsal Tronox Case Overview Kerr-McGee operated two core businesses: oil and gas exploration and production; and chemical production. History – Founded in 1929, Kerr-McGee operated various businesses, including wood-treating, uranium mining and processing, thorium processing, and ammonium perchlorate manufacturing. – By the early 2000s, Kerr-McGee had discontinued most of its historic business operations but remained responsible for massive legacy environmental and tort liabilities related to those businesses. – At that time, Kerr-McGee operated two core businesses: oil and gas exploration and production; and chemical production. Between 2002 and 2005, Kerr-McGee transferred the oil and gas assets to a “new” Kerr-McGee. Spun off the remaining assets (a small, cyclical chemical business with 85-odd years of legacy liabilities, which was re-named Tronox) in 2006. A few months later, Anadarko acquired Kerr-McGee (and the oil and gas business) for $18 billion. Meanwhile, as a result of the transactions, Tronox was rendered insolvent and unable to pay for its legacy liabilities, and ultimately filed for bankruptcy in 2009. 35 August 25, 2014 SEGMENT 2: Cited from http://www2.epa.gov/enforcement/case-summary-settlement-agreement-anadarko-fraud-case-results-billions-environmental#fraud
  • 36. Joe Gardemal Managing Director Alvarez & Marsal Tronox Case Overview Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013). The Bankruptcy Court held that: – Spinoff transaction that defendants orchestrated to free substantially all of their assets from 85 years of environmental and tort liabilities, while assigning such liabilities to undercapitalized debtors, was effected with actual intent to hinder or delay creditors; – Court did not have to conduct its ‘‘reasonably equivalent value’’ and ‘‘insolvency’’ analyses, for purposes of adjudicating constructive fraudulent transfer claims, on strict debtor-by-debtor basis; – Debtors’ ability to survive for several years following challenged transaction, and to complete initial public offering (IPO) and to issue $350 million in unsecured bond debt, was insufficient to establish their solvency at time of transaction. 36 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 37. Forensic Accounting Constructive Fraud 37 August 25, 2014 SEGMENT 2: Joe Gardemal Managing Director Alvarez & Marsal
  • 38. Joe Gardemal Managing Director Alvarez & Marsal Forensic Accounting – Badges of Fraud Badges of Fraud: Circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent. Badges of fraud are not conclusive, but they “help to ‘focus the inquiry on the circumstances that suggest a conveyance was made with fraudulent intent..” The following factors supported the conclusion that the Defendants acted with actual intent to hinder or delay creditors: – Factor 1: The transfer or obligation was to an insider. – Factor 2: The debtor retained possession or control of the property transferred after the transfer. – Factor 3: The transfer or obligation was disclosed or concealed. – Factor 4: Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit. – Factor 5: The transfer was of substantially all of the debtor’s assets. – Factors 8 & 9: Whether the consideration received by the debtor was reasonably equivalent to the value of the property conveyed and whether the debtor was or became insolvent as a consequence of the transfer. 38 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 39. Joe Gardemal Managing Director Alvarez & Marsal Forensic Accounting – Constructive Fraud – a conveyance of an interest in property; – for less than reasonably equivalent value; – that rendered the transferor insolvent, inadequately capitalized, or unable to pay its debts as they 39 August 25, 2014 SEGMENT 2: To prevail on constructive fraud, the plaintiff must prove: became due These requirements mirror Factors 8 and 9 in the Oklahoma UFTA’s badges of fraud. Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 40. Solvency Analysis Balance Sheet Test 40 August 25, 2014 SEGMENT 2: Joe Gardemal Managing Director Alvarez & Marsal
  • 41. Joe Gardemal Managing Director Alvarez & Marsal Solvency Analysis – Balance Sheet Test Insolvency defined in Oklahoma UFTA and Bankruptcy Code The Oklahoma UFTA defines insolvency as follows for a non-partnership debtor: – A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation. – A debtor who is generally not paying his debts as they become due is presumed to be insolvent… – Assets pursuant to the provisions of this section do not include property that has been transferred, concealed, or removed with intent to hinder, delay or defraud creditors or that has been transferred in a manner making the transfer voidable pursuant to the provisions of the Uniform Fraudulent Transfer Act. The Bankruptcy Code at § 101(32) defines insolvent, in relevant part, as follows: – With reference to an entity other than a partnership and a municipality, financial condition such that the sum of such entity’s debts is greater than all of such entity’s property, at a fair valuation. 41 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 42. Joe Gardemal Managing Director Alvarez & Marsal Solvency Analysis – Balance Sheet Test The relevant analysis of solvency for fraudulent conveyance purposes in Tronox was a “balance sheet test,” examining whether debts in aggregate are greater than assets in the aggregate. The Public Market – Defendants’ reliance on the ‘‘market’’ and the fact that lenders loaned $450 million in senior secured debt and that Tronox was also able to sell into the market $350 million in bonds and $224.7 million in stock is unavailing… » The debt that Tronox issued was secured by all of the assets of all of the Tronox companies, and …would come first in any bankruptcy or liquidation of the enterprise. » The projections on which the IPO was based were inflated, sell-side projections…key numbers were imposed at the direction of Kerr–McGee’s chief financial officer. » Financial statement reserves for environmental liabilities are of no probative value in a solvency analysis. » The way the market might look at [these] legacy liabilities, certainly the way GAAP looks at them is different than the determination of a claim under… the Oklahoma UFTA. 42 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 43. Joe Gardemal Managing Director Alvarez & Marsal Solvency Analysis – Balance Sheet Test The relevant analysis of solvency for fraudulent conveyance purposes in Tronox was a “balance sheet test,” examining whether debts in aggregate are greater than assets in the aggregate. Defendants’ Market Defense – Defendants assert, ‘‘In this trial, the enormous body of contemporaneous market evidence of solvency was far stronger than in VFB, Iridium and CarCo - all of which found for defendants on solvency.’’ – Defendants assert the evidence at trial established two critical bookends to the public market. » On the one hand is Apollo’s signed, fully-financed offer to purchase the Chemical Business, based on six months and millions of dollars in diligence. » On the other hand are the compelling, contemporaneous statements and actions of Tronox’s own officers and managers, including statements subject to the securities laws— all of which are consistent with the public market evidence of solvency. 43 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 44. Joe Gardemal Managing Director Alvarez & Marsal Solvency Analysis – Balance Sheet Test The relevant analysis of solvency for fraudulent conveyance purposes in Tronox was a “balance sheet test,” examining whether debts in aggregate are greater than assets in the aggregate. The Allegedly Sophisticated Market Players – Defendants rely on Apollo…[and] on the participants in the market who performed independent due diligence that extended well beyond public information. » However, these ‘‘market participants’’ had interests which were unique and caused them to be hardly representative of ‘‘the market.’’ » The Secured Lenders could be confident that they would be paid before any legacy liability claims—as was indeed the case in Tronox’s bankruptcy. » Apollo did not make a ‘‘final and binding’’ offer for Tronox of $1.3 billion. Statements and Actions of Tronox Management 44 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 45. Joe Gardemal Managing Director Alvarez & Marsal Solvency Analysis – Balance Sheet Test The relevant analysis of solvency for fraudulent conveyance purposes in Tronox was a “balance sheet test,” examining whether debts in aggregate are greater than assets in the aggregate. Debts at the Date of the IPO “at a Fair Valuation” – Under the UFTA, there is no substitute for performing an analysis of Tronox’s assets as at the date of the IPO and measuring them against its liabilities, both at a fair value…this case is about environmental liabilities. – Plaintiffs’ Environmental Expert’s analysis is the only comprehensive valuation in the vast record of this case of Tronox’s environmental liabilities. – Defendants’ failure, at any time, either before or after this case was filed, to come forward with a comprehensive analysis of the environmental liabilities that Kerr–McGee had imposed on Tronox, is a major failure of proof. 45 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 46. Joe Gardemal Managing Director Alvarez & Marsal Solvency Analysis – Unreasonably Small Capital/Inability to Pay Debts Unreasonably Small Capital Test – The Court accepted the testimony of Plaintiffs’ expert that Tronox’s projections were unreasonable and that its capital was inadequate, “burdened as it was by the legacy liabilities.” Inability to Pay Debts as They Come Due – The Court found that Plaintiffs had met their burden of proof, in part because “Defendants never even performed an analysis of Tronox’s ability to satisfy the legacy liabilities.” 46 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 47. Valuation Analysis 47 August 25, 2014 SEGMENT 2: Joe Gardemal Managing Director Alvarez & Marsal
  • 48. Valuation Analysis Income Approaches include Discounted Cash Flow and Capitalization of Earnings; Market Approaches include Comparable Company Analysis and Comparable Transaction Analysis. In this case, standard approaches in determining business enterprise value (BEV) of assets transferred include: – A discounted cash flow analysis: Under a DCF, the company's debt-free cash flow is projected over a period of time until such time that the company reaches a stabilized level of growth. – A comparable company analysis: Publicly-traded companies with similar operating characteristics that are in the same or similar industry as the target company to be valued are identified. Based on the identified companies, various value multiples are derived and applied to the target company. – A comparable transaction analysis: Similar to the comparable company analysis, value indicators are used to estimate the values of the target company. 48 August 25, 2014 SEGMENT 2: Joe Gardemal Managing Director Alvarez & Marsal
  • 49. Valuation Analysis – Key Issues Projected pricing of titanium dioxide Valuation of legacy environmental liabilities – Expert testimony – Third-party due diligence 49 August 25, 2014 SEGMENT 2: Joe Gardemal Managing Director Alvarez & Marsal
  • 50. Joe Gardemal Managing Director Alvarez & Marsal Valuation Analysis DCF determines BEV by examining the earning capacity of the enterprise over a reasonable period of time, adds a residual or terminal value to extend the analysis beyond the chosen period, and then discounts the result to present value. Discounted Cash Flow Analysis: – Defendant expert’s calculation of $1.7 billion was not persuasive. – Plaintiff’s expert did not start his discounted cash flow analysis with the company’s internal projections. He adjusted them downwards for several reasons including: » The financial projections in Tronox’s S–1 were inflated ‘‘sell-side’’ projections based on overly optimistic assumptions. » The IPO projections were unrealistic when compared with Tronox’s historical performance. » Tronox TiO2 business peaked early in 2005 and was on the downturn by the time of the IPO in November. – Defendant’s expert simply used the management projections…without subjecting them to any analysis or considering the chemical business’ historical performance. 50 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 51. Joe Gardemal Managing Director Alvarez & Marsal Valuation Analysis The comparable company analysis attempts to determine value by reference to the value of companies in the same line of business. Comparable Company Analysis: – Defendant expert’s conclusion that Tronox’s BEV based on the comparable company analysis was of $1.48 to $1.6 billion was not persuasive. – Defendants’ expert was flawed by his choice of companies for comparative purposes…His list of comparable companies included: » DuPont, vastly larger and more diversified than Tronox; » Diversified companies such as Cabot Corp. and Eastman Chemical; and » Specialty chemical companies (such as Hercules) which typically trade at a higher multiple than commodity chemical companies like Tronox. 51 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 52. Joe Gardemal Managing Director Alvarez & Marsal Valuation Analysis The comparable transaction analysis attempts to determine value by reference to the merger and acquisition activity of companies in the same line of business. Comparable Transaction Analysis: – Defendants’ expert analysis…resulted in a BEV of $1.5 billion, but this analysis was flawed by weaknesses in the third parties’ projections. – Defendants’ expert included transactions involving: » An Indian fertilizer company » A Swiss company making waterproofing materials and parts for car manufacturers, and » A company making foam-related products for diapers and adult incontinence products. – Defendants’ expert purported to confirm his results by using what he calculated as ‘‘third-party projections’’ of Tronox’s future income instead of Tronox’s internal projections. 52 August 25, 2014 SEGMENT 2: Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013).
  • 53. Joe Gardemal Managing Director Alvarez & Marsal Valuation Analysis (in Billions) 53 August 25, 2014 SEGMENT 2: Approach Plaintiff Defendant Court Cited from Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013). Assets Discounted Cash Flow $1.01 $1.70 Comparable Company $1.00 $1.54 Comparable Transaction $1.10 $1.70 Average/Conclusion $1.03 $1.70 $1.03 Non-Operating Assets $0.19 $0.11 $0.19 Total Assets $1.22 $1.81 $1.22 Liabilities $2.17 $1.02 $2.07 Net Assets -$0.95 $0.79 -$0.85
  • 54. Introduction William R. Wagner is a partner in the Financial Services Practice Group of Pepper Hamilton LLP, resident in the New York office. Mr. Wagner focuses his practice on complex international and domestic loan workouts, financial restructurings and distressed investments. He has extensive secured and unsecured bank financing experience, including real estate, aircraft, sports lending, acquisition finance, leasing, securitization, structured finance, swaps and derivatives. Mr. Wagner also represents investment and commercial banks, asset managers, funds and other strategic investors in trades of distressed and par-value loan obligations. He has extensive experience in both foreign and domestic trading markets ranging from individual loan trades to complex portfolio acquisitions and sales. 54 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 55. Section 548 - Federal Cause of Action for Avoidance of Fraudulent Transfers • 548(a)(1)(A) – Intentional Fraud − Permits the trustee to avoid any transfers made or obligations incurred by the debtor within two years of the petition date where there was “actual intent to hinder, delay or defraud” any entity to which the debtor was or became indebted at the time of or after the transfer or obligation. 55 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 56. Section 548 - Federal Cause of Action for Avoidance of Fraudulent Transfer • 548(a)(1)(B) – Constructive Fraud − Permits the trustee to avoid transfers or obligations where the debtor received “less than reasonably equivalent value in exchange” and either: • was insolvent or became insolvent; • was left with unreasonably small capital; • intended to incur or believed it would incur debts beyond its ability to pay; or • made the transfer or incurred the obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business. 56 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 57. Section 544(b) Avoidance Powers • Provides that the trustee “may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law” by a creditor with an allowable unsecured claim • Empowers the trustee to utilize any legal theory of recovery that a creditor could assert under state law, such as a state’s version of the Uniform Fraudulent Transfer Act or the Uniform Fraudulent Conveyance Act or other applicable law − Creditors of the debtor may also have a cause of action under state fraudulent transfer law 57 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 58. Section 546 – Safe Harbor Provisions • Notwithstanding the trustee’s avoidance powers, including under sections 544 and 548, the trustee cannot avoid certain types of transactions in the financial markets made by or to various enumerated participants, unless the transaction is the product of actual fraud under section 548(a)(1)(A): − Section 546(e) – protects margin payments and settlement payments − Section 546(f) – protects repurchase agreements − Section 546(g) – protects swap agreements 58 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 59. Recent S.D.N.Y. Jurisprudence ISSUE • Do section 546’s safe harbor provisions bar fraudulent transfer claims under state law related to the financial transactions otherwise protected from avoidance under the Bankruptcy Code’s safe harbor provisions? 59 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 60. Recent S.D.N.Y. Jurisprudence ANSWER • Three recent cases have created a split of authority in the Southern District of New York: − Whyte v. Barclays Bank PLC, 494 B.R. 196 (S.D.N.Y. 2013) − In re Tribune Fraudulent Conveyance Litig., 499 B.R. 310 (S.D.N.Y. 2013) − Weisfelner v. Fund 1 (In re Lyondell Chemical Co.), 503 B.R. 348 (Bankr. S.D.N.Y. 2014) 60 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 61. Barclays Bank (Judge Rakoff) • Background − a post-confirmation litigation trust was assigned “any and all” of certain debtors’ and creditors’ claims − the litigation trustee sought to avoid a pre-petition swap transaction under state fraudulent transfer law − the trustee tried to get around the safe harbor for swap transactions under section 546(g) by arguing that she was not pursuing it under section 544, but rather as assignee of the creditor claims assigned to the trust  since section 546(g) only applies to estate representatives exercising federal avoidance powers, it should not apply to claims asserted by creditors 61 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 62. Barclays Bank (Judge Rakoff) • Holding − section 546(g) implicitly preempts state law fraudulent conveyance actions seeking to avoid swap transactions − permitting a trustee to avoid a swap transaction by a state fraudulent conveyance action would stand as a major obstacle to the purposes and objectives of Congress in passing section 546(g) − the safe harbors were intended to stabilize the financial markets in the event of a major bankruptcy in the industry, and the “facial breadth of these provisions, and the corresponding legislative history, make plain that Congress intended to place swap transactions totally beyond the inherently destabilizing effects of a bankruptcy and its attendant litigation.” 62 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 63. Tribune (Judge Sullivan) • Background − the Creditors’ Committee (succeeded post-confirmation by a litigation trust) and individual creditors of the debtor sought, by separate actions in more than twenty state and federal courts, to avoid as fraudulent transfers funds distributed to individuals and entities bought out in the course of a pre-petition leveraged buyout of the debtor − the Committee sought to avoid the distributions as intentionally fraudulent transfers under section 548(a)(1)(A), while the individual creditor actions sought avoidance under state law − the defendants argued that the individual creditors’ claims under state law were prohibited under section 546(e)’s safe harbor for settlement payments, and cited Barclays Bank to argue that Congress impliedly preempted such claims by enacting section 546(e) because the claims would frustrate the purpose of the safe harbor to provide certainty and stability to securities transactions 63 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 64. Tribune (Judge Sullivan) • Holding − section 546(e) addresses its prohibition only to the bankruptcy trustee, and Congress did not impliedly preempt creditors’ state law constructive fraud claims − Congress did not enact section 546(e) to protect market stability to the exclusion of all other policies, and other sections of the Code show it knew how to expressly preempt creditor actions where desired − Barclays Bank was distinguishable because unlike the individual creditors in Tribune, there the litigation trust served in the capacity of both the bankruptcy trustee and the representative of outside creditors, and therefore could not pursue as the creditors’ representative an avoidance claim it was barred from pursuing as the trustee 64 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 65. Lyondell (Judge Gerber) • Background − a Creditors’ Trust was assignee under the debtor’s reorganization plan of claims by certain classes of creditors, and sought to avoid distributions received by the debtor’s former shareholders in a prepetition leveraged buyout  the claims were asserted solely under state law − the defendants argued that (i) section 546(e)’s safe harbor for settlement payments provided a substantive defense to the state law claims just as if they had been brought under the Code, and (ii) the failure of states to provide a similar safe harbor in their constructive fraudulent transfer avoidance statutes rendered the statutes preempted by section 546(e) 65 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 66. Lyondell (Judge Gerber) • Holding − followed Tribune in holding that the plain language of section 546(e) renders it inapplicable to state law claims brought on behalf of individual creditors − also followed Tribune in finding that Congress did not impliedly preempt state fraudulent transfer law through section 546(e) because the Bankruptcy Code entails an array of policy decisions in addition to protecting markets from systemic risk, including the avoidance of insolvent entities’ transfers where they are at the expense of the creditor community and the absolute priority rule − Court drew a distinction between protecting financial markets and protecting investors in public markets (“Nothing in the legislative history of the existing law evidences a desire to protect individual investors who are beneficial recipients of insolvents’ assets.”). − Court found Barclays Bank both distinguishable and its analysis “to be less thorough than that of Tribune, and … flawed.” 66 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 67. Outlook for Safe Harbor Defenses in S.D.N.Y. • Barclays Bank remains good law and offers some support for the argument that state law constructive fraud claims are preempted by section 546’s safe harbor provisions where one of the enumerated transactions is implicated • HOWEVER, the tide seems to be turning in light of Tribune and Lyondell, which are both more recent than Barclays Bank and either distinguish or criticize its reasoning 67 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 68. Outlook for Safe Harbor Defenses in S.D.N.Y. • the current state of play may be that while there is a split of authority in the district, future courts are more likely to follow Judge Sullivan and Judge Gerber in finding that section 546 does not apply to state law fraudulent transfer claims and does not preempt them • Note that both Barclays Bank and Tribune have been appealed to the Second Circuit and will be heard in tandem, so stay tuned for a resolution 68 August 25, 2014 SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
  • 69. Q&A: ► You may ask a question at anytime throughout the presentation today. Simply click on the question mark icon located on the floating tool bar on the bottom right side of your screen. Type your question in the box that appears and click send. ► Questions will be answered in the order they are received. 69 August 25, 2014 SEGMENT 1: Dion W. Hayes Partner McGuireWoods LLP SEGMENT 2: Dion W. Hayes Partner McGuireWoods LLP SEGMENT 3: William R. Wagner Partner Pepper Hamilton LLP
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