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avoiding powers

Comparative law notes


The German concept of Deckungsanfechtung is predicated on an insolvency administrator's authority to avoid certain prejudicial transactions. This authority is functionally equivalent to so-called "avoiding powers" recognized in the United States. Of course, these powers alone would not serve as a translation of this German concept, which addresses the action taken to enforce those powers (see next entry and our recommended translation). The debtor-in-possession or the trustee, as the case may be, may use these powers to undo a transfer of money or property made during a certain period of time before the filing of the bankruptcy petition. By avoiding a particular transfer of property, the debtor-in-possession can cancel the transaction and force the return or "disgorgement" of the payments or property, which then are available to pay all creditors. Generally, and subject to various defenses, the power to avoid transfers is effective against transfers made by the debtor within 90 days before filing the petition. But transfers to "insiders" (i.e., relatives, general partners, and directors or officers of the debtor) made up to a year before filing may be avoided. 11 U.S.C. §§ 101(31), 101(54), 547, 548. In addition, under 11 U.S.C. § 544, the trustee is authorized to avoid transfers under applicable state law, which often provides for longer time periods. Avoiding powers prevent unfair pre-petition payments to one creditor at the expense of all other creditors.