asset acquisitions - Jackson Walker LLP

(B)the seller intended to incur, or believed (or should have believed) that it would incur,debts beyond its ability to pay as they became due.The “unreasonably small assets” test is a distinct concept from insolvency and is notspecifically defined by statute. In applying the unreasonably small assets test, a court mayinquire whether the seller “has the ability to generate sufficient cash flow on the date oftransfer to sustain its operations.” See In re WCC Holding Corp., 171 B.R. 972, 986 (Bankr.N.D. Tex. 1994). In pursuing such an inquiry, a court will not ask whether the transferor’scash flow projections later proved to be correct, but whether they were reasonable andprudent at the time they were made.Remedies for Fraudulent Transfers. The remedies available to a creditor in afraudulent transfer action include entry of judgment against the transferee for the value of theproperty at the time it was transferred, entry of an order requiring return of the property tothe transferor for satisfaction of creditors’ claims, or any other relief the circumstances mayrequire. UFTA §§ 7(a), 8(b). Courts have wide discretion in fashioning appropriateremedies.Transferee Defenses and Protections. Even if a transfer is voidable under the UFTA,a good faith transferee is entitled under UFTA § 8, to the extent of the value given to thetransferor, to (a) a lien on or right to retain an interest in the asset transferred; (b)enforcement of the note or other obligation incurred; or (c) reduction in the amount of theliability on the judgment against the transferee in favor of the creditor. UFTA § 8(d)(1)-(3)If the value paid by the transferee was not received by the transferor, the good faithtransferee would not be entitled to the rights specified in the preceding sentence. If thetransferor distributed the proceeds of sale, in liquidation or otherwise to its equity holders, acourt could collapse the transaction and find that the proceeds were not received by thetransferor, thereby depriving the good faith transferee of the rights to offset the value it paidagainst a fraudulent transfer recovery. With this in mind, a buyer may seek to require thatthe seller pay all of its retained liabilities prior to making any distribution, in liquidation orotherwise, to its equity holders. See Sections 10.3 and 10.4.3.33 DISCLOSURE(a) No representation or warranty or other statement made by Seller or eitherShareholder in this Agreement, the Disclosure Letter, any supplement to the DisclosureLetter, the certificates delivered pursuant to Section 2.7(b) or otherwise in connection withthe Contemplated Transactions contains any untrue statement or omits to state a material factnecessary to make any of them, in light of the circumstances in which it was made, notmisleading.(b) Seller does not have Knowledge of any fact that has specific application to Seller(other than general economic or industry conditions) and that may materially adversely affectthe assets, business, prospects, financial condition, or results of operations of Seller that hasnot been set forth in this Agreement or the Disclosure Letter.COMMENTThe representation in subsection (a) assures the Buyer that the specific disclosuresmade in the Seller’s representations and in the Disclosure Letter do not, and neither any3148166v1- 109 -