Clawback (Avoidance Action)
Definition
A lawsuit brought by the trustee to recover assets or payments that left the estate before bankruptcy. The trustee's avoidance powers are the legal mechanism behind clawback actions.
- Filed by
- Bankruptcy trustee
- Basis
- Trustee's statutory avoidance powers
- Targets
- Assets or payments moved before filing
- Related terms
- Fraudulent transfer, preferential payment
Common questions
What kinds of transfers can be clawed back?+
Two main categories: fraudulent transfers made to hinder or defraud creditors, and preferential payments that gave one creditor more than they would have received in the bankruptcy distribution, both made within a statutory lookback period before filing.
Does a clawback action require proving the debtor intended to defraud creditors?+
Not always. Preferential transfer claims turn on timing and effect on creditors regardless of intent, while fraudulent transfer claims can be proven either through actual intent or through a constructive test based on inadequate consideration and the debtor's financial condition.
Related terms
- Bankruptcy Examiner
- An independent investigator appointed by the court in a bankruptcy case to investigate specific matters such as fraud or mismanagement. Unlike a...
- Fraudulent Transfer (Fraudulent Conveyance)
- A transfer of assets made with intent to hinder, delay, or defraud creditors, or made for less than reasonably equivalent value while...
- Ponzi-Scheme Insolvency
- An insolvency where the debtor operated a Ponzi scheme: early investors received returns paid from later investors' capital rather than genuine investment...
- Preference Payment
- A payment made to a creditor within the statutory preference period (typically 90 days before bankruptcy filing, one year for insiders) that...
- UNCITRAL Model Law
- The UNCITRAL Model Law on Cross-Border Insolvency (1997), a template for coordinating insolvency proceedings across borders. Countries that adopt it (including the...