SCOTUS Rules that Bankruptcy Code Safe Harbor Does Not Protect Transfers In Which Financial Institutions Are "Mere Conduits"

On February 27, 2018, the United States Supreme Court in a significant ruling held in Merit Management Group, LP v. FTI Consulting, Inc. that transfers of property of a debtor in which financial institutions are mere conduits or intermediaries may be avoidable. The Court ruled that the safe harbor provisions of section 546(e) of the Bankruptcy Code do not protect such transfers from avoidance.

The Supreme Court's ruling affirmed the Seventh Circuit Court of Appeals decision in FTI and resolved a split of Court of Appeals decisions (the Second, Third, Eighth, and Tenth Circuits had held that the safe harbor protected such transfers, and the Eleventh Circuit had held that it did not) .¹