Lose Money in an LBO Deal? You May Be a Fraud Victim

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The 1980s left many banks with big loan losses, many involving leveraged buyouts. Fortunately, there is a way for creditors to recover on some of those LBO-related losses.

If you lent to a now-failed company with an LBO in its history, ask yourself, "Could this LBO have been a fraudulent conveyance?"

If the answer is yes, then you may be able to collect - not from your corporate borrower, but from the previous owners of the company, especially large shareholders who were insiders. That's because it is fraudulent for a debtor to transfer or convey property with the intent or effect of placing it beyond the reach of creditors.

Principle Isn't New

Such transactions have been illegal ever since they were described in the Statute of Queen Elizabeth I in 1570. This principle has since been incorporated into U.S. federal …