The Balance Sheet Test in Fraudulent Transfer Cases: Is It Appropriate to Fair Value Liabilities?
Publication| Bankruptcy & Corporate Restructuring
Proving insolvency is an important element of a fraudulent transfer claim. Therefore, it issurprising that courts diverge on how they interpret the most basic of the solvency tests,the balance sheet test. Some courts hold that the balance sheet test compares the recordedamount of liabilities to the fair value of assets. Other courts hold that the balance sheettest compares the fair value of liabilities to the fair value of assets. This discussion examinesthese differing interpretations of the balance sheet test and recommends a unifying principleto reconcile these differing interpretations.