Leading global law firm Baker McKenzie has secured an order from the United States Court of Appeals for the Seventh Circuit affirming dismissal of a complaint against BMO Harris Bank N.A. and Sun Capital Partners in an adversary proceeding related to the bankruptcy of BWGS, LLC.
The Seventh Circuit's opinion affirmed a lower court's dismissal of a bankruptcy trustee's USD 25 million complaint against BMO Harris and Sun Capital. The complaint sought to clawback approximately USD 25 million that had been paid to BMO to satisfy a bridge loan used to effectuate the acquisition of BWGS. Years later, after BWGS was forced to file for bankruptcy protection, the trustee asserted that the payment to BMO to satisfy the bridge loan constituted a fraudulent conveyance. The case presented two questions of first impression in the Seventh Circuit concerning the applicability and preemptive effect of the safe harbor provision found in Section 546(e) of Chapter 11 of the US Bankruptcy code.
BWGS's parent, Sun Capital Partners, had been a guarantor of the bridge loan prior to its repayment. Following BMO's filing an initial motion to dismiss the case in its entirety, the trustee amended his complaint to add Sun Capital Partners as beneficiary of the alleged fraudulent conveyance. Baker McKenzie moved to dismiss the case on behalf of BMO Harris and Sun Capital, based in part on the safe harbor provisions in section 546(e), but those motions were initially denied by the Bankruptcy Court. On appeal to the US District Court for the Southern District of Indiana, the District Court reversed the Bankruptcy Court's order, and, following oral argument in January 2024, the US Court of Appeals for the Seventh Circuit affirmed the District Court's decision.
"We are very pleased with the Seventh Circuit's opinion affirming the District Court, vindicating our clients in a case that has great significance for the private equity industry," said Michael Duffy, a partner in Baker McKenzie's North America Litigation & Government Enforcement Practice. "Had a different result occurred, private equity firms would have had to consider ceasing the practice of using bridge financing to quickly and efficiently effectuate transactions."
The Baker McKenzie team advising BMO Harris and Sun Capital was led by Michael Duffy and included Michael McCutcheon, Laura Kelly, and Mike Lehrman.
The Seventh Circuit's opinion affirmed a lower court's dismissal of a bankruptcy trustee's USD 25 million complaint against BMO Harris and Sun Capital. The complaint sought to clawback approximately USD 25 million that had been paid to BMO to satisfy a bridge loan used to effectuate the acquisition of BWGS. Years later, after BWGS was forced to file for bankruptcy protection, the trustee asserted that the payment to BMO to satisfy the bridge loan constituted a fraudulent conveyance. The case presented two questions of first impression in the Seventh Circuit concerning the applicability and preemptive effect of the safe harbor provision found in Section 546(e) of Chapter 11 of the US Bankruptcy code.
BWGS's parent, Sun Capital Partners, had been a guarantor of the bridge loan prior to its repayment. Following BMO's filing an initial motion to dismiss the case in its entirety, the trustee amended his complaint to add Sun Capital Partners as beneficiary of the alleged fraudulent conveyance. Baker McKenzie moved to dismiss the case on behalf of BMO Harris and Sun Capital, based in part on the safe harbor provisions in section 546(e), but those motions were initially denied by the Bankruptcy Court. On appeal to the US District Court for the Southern District of Indiana, the District Court reversed the Bankruptcy Court's order, and, following oral argument in January 2024, the US Court of Appeals for the Seventh Circuit affirmed the District Court's decision.
"We are very pleased with the Seventh Circuit's opinion affirming the District Court, vindicating our clients in a case that has great significance for the private equity industry," said Michael Duffy, a partner in Baker McKenzie's North America Litigation & Government Enforcement Practice. "Had a different result occurred, private equity firms would have had to consider ceasing the practice of using bridge financing to quickly and efficiently effectuate transactions."
The Baker McKenzie team advising BMO Harris and Sun Capital was led by Michael Duffy and included Michael McCutcheon, Laura Kelly, and Mike Lehrman.
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