Meaning
Legal procedures allow a bankruptcy trustee or a court to cancel certain transactions that occurred before a company became insolvent. Creditors use statutory avoidance to claw back money that was unfairly paid out to insiders or preferred vendors just before a collapse. These statutory avoidance rules ensure that the remaining assets are divided fairly among all creditors.
They prevent a founder from taking a large dividend while the company is failing.
Preference Claim
A preference claim is a common form of this action. If a firm pays back a loan to a founder but ignores other debts, statutory avoidance allows the court to demand that money back. This usually covers payments made in the ninety days before a bankruptcy filing.
Fraudulent Transfer
Fraudulent transfer occurs when assets are moved out of the firm for less than their worth. Under statutory avoidance, a court can void the sale of a patent or a building if the price was low. This protects the value of the estate for the people who are owed money.
Clawback Provision
The clawback provision acts as a deterrent against self-dealing. It creates a period of look-back that keeps the books honest during a crisis.
