No Equitable Tolling Of Section 548 'Look-Back' Period

In Industrial Enterprises of America v. Burtis (In re Pitt Penn Holding Co., Inc.), 2012 WL 204095 (Bankr. D. Del. Jan. 24, 2012), a Delaware bankruptcy court held that the two-year statutory "look-back" period with respect to which a fraudulent transfer may be avoided pursuant to section 548 of the Bankruptcy Code cannot be "equitably tolled." Previously, the bankruptcy court had issued inconsistent orders in various adversary proceedings in the case providing that the two-year look-back period could be equitably tolled, allowing transfers that occurred outside that window of time to be avoided. Pitt Penn clarifies that, in the view of this Delaware bankruptcy court, the look-back period cannot be tolled for equitable reasons because it is "a substantive element of a § 548 cause of action" rather than a statute of limitations.

AVOIDANCE OF FRAUDULENT TRANSFERS AND OBLIGATIONS

Section 548(a) of the Bankruptcy Code allows a bankruptcy trustee or chapter 11 debtor in possession ("DIP") to avoid transfers of a debtor's property or obligations incurred by a debtor if the transaction involved was either actually or constructively fraudulent and if the transfer or obligation "was made or incurred on or within 2 years before the date of the filing of the petition."

Transfers may also be avoided under applicable state law by operation of section 544(b) of the Bankruptcy Code. Section 544(b) allows a DIP or trustee to "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 holding an unsecured claim" against the debtor. The primary advantage of this provision over section 548 is that many state fraudulent-transfer laws (in most jurisdictions, a version of the Uniform Fraudulent Transfer Act) provide for a longer statutory look-back period than the two-year period specified in section 548.

Section 546 of the Bankruptcy Code places other limitations on the ability of a trustee or DIP to commence avoidance actions. Section 546(a) provides in relevant part:

An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of— (1) the later of— (A) 2 years after the entry of the order for relief; or (B) 1 year after the appointment or election of the first trustee . . . ; or (2) the time the case is closed or dismissed.

If a transfer is avoided, the trustee or DIP can recover the property transferred or its...