Lyondell creditors’ LBO-related intentional fraud claim reinstated

By Caroline Salls

Pittsburgh, July 27 – A federal appeals court reinstated an intentional fraudulent conveyance claim filed against Lyondell Chemical Co. by the trustee for its unsecured creditors in connection with the company’s 2007 leveraged buyout, according to an order filed July 27 by the U.S. District Court for the Southern District of New York.

Specifically, the unsecured creditors, through trustee Edward S. Weisfelner, asked for reinstatement of their claim that Lyondell conducted an intentional fraudulent transfer in connection with the LBO. The claim seeks to claw back $6.3 billion in distributions made to Lyondell shareholders through the LBO.

On appeal, the court said the parties disputed whether the fraudulent intent of Lyondell’s CEO may be imputed to Lyondell, and what standard applies in determining the existence of “actual intent” to defraud.

U.S. district court judge Denise Cote said that the trustee was able to show that CEO Dan Smith “acted with actual intent to hinder, delay and defraud Lyondell’s creditors.” In addition, Cote said Smith’s intent may be imputed to Lyondell.

“The trustee has pleaded sufficient facts from which it can properly be inferred that Smith not only recklessly disregarded the likelihood that the LBO would quite quickly injure creditors, but also contemplated and believed that Lyondell would default on its obligations to its creditors within a very short period of time,” Cote said.

“And, indeed, that is precisely what happened. Lyondell filed for bankruptcy roughly a year after the LBO.”

Cote said the trustee’s allegations “create a plausible inference of an actual intent to defraud creditors,” but it remains to be seen whether Weisfelner can prevail at trial.

The U.S. Bankruptcy Court for the Southern District of New York dismissed the intentional fraudulent conveyance claim in November 2015.

Lyondell Chemical is a subsidiary of LyondellBasell, a plastics, chemical and refining company based in Rotterdam, the Netherlands.

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