Delaware Judge Brendan Shannon has joined calls for reforming Section 546(e) of the bankruptcy code, echoing concerns that the section’s safe harbor from fraudulent transfer liability has allowed investors to “loot privately held companies to the detriment of their non-insider creditors with effective impunity.”
Judge Shannon is the second judge to recently press Congress to narrow section 546(e)’s safe harbor. In October 2022, Judge Robert Drain warned, in his final opinion from the bench, that section 546(e)’s overbroad exemption has enabled private equity companies to siphon billions in debt-funded dividends from the companies they own, often at the expense of other creditors. Judge Drain urged Congress to limit section 546(e) to public transactions.
