J.H. Cohn's Clancy, Benbrook Testify In Landmark TOUSA Case
12/01/2009
J.H. Cohn LLP’s Business Investigation Services (BIS) Group and Construction Industry Practice provided financial advisory services to the Unsecured Creditors Committee of TOUSA, Inc, et. al. in its ongoing bankruptcy case. TOUSA, which designed, built, and marketed high-quality detached single-family homes, townhomes, and condominiums, filed for Chapter 11 bankruptcy protection on January 29, 2008 (Tousa Inc., 08-10928, U.S. Bankruptcy Court, Southern District of Florida – Fort Lauderdale).
Throughout the pendency of the case, J.H. Cohn partners Kevin P. Clancy, CPA, J.D., CIRA, CFF, and Amy Benbrook, CPA, of the Firm’s BIS Group and Construction Industry Practice, respectively, reviewed and analyzed TOUSA’s business plans and assessed transactions regarding real estate assets and investments. The Firm also advised the Committee as to plan negotiations and provided forensic accounting and expert testimony at trial related to the Committee’s fraudulent conveyance litigation against certain of TOUSA’s lenders.
The litigation focused on TOUSA’s 2007 decision to borrow $500 million (the “$500 Million Financing”) to settle litigation stemming from a joint venture acquisition. As part of that loan agreement, TOUSA granted its lenders liens on assets of its subsidiaries. After the builder entered into bankruptcy, unsecured bondholders—who lent TOUSA more than $1 billion for which it and its subsidiaries were jointly liable—claimed TOUSA fraudulently pledged those assets to the banks as part of the $500 Million Financing. Creditors in this case also sought the return of more than $400 million to the Debtors’ estates.
The bankruptcy judge issued an opinion on October 13, 2009 finding in favor of the plaintiffs. In rendering the decision, the judge found that TOUSA and its subsidiaries were insolvent at the time of the $500 Million Financing in July, 2007. As part of the ruling, the defendant banks were ordered to return as much as $600 million in payments related to the fraudulent transaction. The defendants have appealed the bankruptcy court’s rulings.
The TOUSA case has the potential to reach well beyond the company and its lien holders. Legal commentators noted that the case has opened the door for creditors in other cases to aggressively pursue similar litigation in hopes of receiving better recoveries.
J.H. Cohn’s specialization in bankruptcy and litigation support, when coupled with its in-depth knowledge of the construction industry, puts the Firm in a unique position to support creditors’ efforts. To speak with a J.H. Cohn professional about the issues raised in the TOUSA case and its impact on future, similar matters, please email us at jhcohn@jhcohn.com.