By: Donald L Swanson
Many years ago in a far-away bankruptcy court, I’m appearing for the first time before a certain bankruptcy judge. [Note: that judge is long-ago retired by now.]
It’s a Chapter 11 case that’s substantial for that long-ago time and place.
We’re at a motion day for the case, with lots of motions scheduled to come before the Court, including mine. My motion is my clients’ request for derivative authority to pursue avoidance of a secured obligation as a constructively fraudulent transfer under both (i) § 548, and (ii) the state’s Uniform Fraudulent Transfer Act via § 544(b).
Taking Offense
In the hearings that day, the Bankruptcy Judge deals with a bunch of motions over a couple hours time, when my motion for derivative authority finally comes up.
The Judge turns to me with an attitude of, “You want what?!,” and lets me begin to say my piece. A little ways into my argument, the Judge is obviously non-plussed by what I’m saying . . . and then becomes increasingly agitated as I continue talking.
Finally, the Judge interrupts in red-face exasperation with, “You can’t avoid an obligation as a fraudulent transfer!”
I want to say, in response:
- “Yes you can!”
- “That’s because § 548(a)(1) says, ‘The trustee may avoid . . . any obligation . . . incurred by the debtor . . .’”; and
- “because the Uniform Fraudulent Transfer Act has corresponding language!”
But the Judge has already moved on and wants to hear nothing more from me.
I’ll confess to being offended. I’d put a lot of effort into preparing that motion and related documents. And to get shut down and dismissed with, “you can’t avoid an obligation as a fraudulent transfer,” was particularly hard to take because . . . well, because the Judge was wrong!!
Vindication
But I have now received, all these years later, vindication!
The case-of-vindication is Denali Construction Service, LLC, v. Cloudfund, LLC, et al., Adv. No. 24-3083, Northern Texas Bankruptcy Court (decided March 20, 2026; Doc. 212 & 214). In Denali, the Debtor sues a merchant cash advance (“MCA”) lender to eliminate two separate loans on various grounds—including the fraudulent transfer provisions in § 548 of the Bankruptcy Code.
[Note: The judge in my long-ago case and I have nothing to do with the Denali case. My so-called “vindication” is merely from another judge reaching an opposite conclusion.]
The Bankruptcy Court’s Judgment in the Denali case (Doc. 214) contains these rulings:
- Defendant’s first MCA agreement provides for “interest at the rate of 427.9% per annum” by contracting “to receive $309,500.00 in interest on the principle sum of $440,000.00 provided to the Debtor for a 60-day term”; and
- Defendant’s second MCA agreement provides for “interest at the rate of 348.3% per annum” by contracting “to receive $649,000.00 in interest on the principle sum of $850,000.00 provided to the Debtor for an 80-day term.”
Then (and most important for my vindication), the Judgment includes the conclusion that Defendant’s MCL loans “are hereby avoided pursuant to 11 U.S.C. § 548(a)(1)(B) as constructively fraudulent obligations.”
Conclusion
“Take that!” is what I want to say to the Judge of many years ago [not that I’d remember such a thing after all these years]. But I can’t . . . and wouldn’t in any event because of professional decorum obligations [sigh!].
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MEDIATBANKRY 
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