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Underwriters, prohibits a creditor or creditors' committee from maintaining standing to prosecute an avoiding action. As a result, a creditor sued in an avoidance action by a creditor or creditors' committee in a circuit that has not previously addressed derivative standing can raise the plaintiff's lack of standing in response to the complaint.
Section 550(a) of the Bankruptcy Code states that the trustee may recover "for the benefit of the estate" the property transferred. 11 U.S.C. § 550(a). In a case where only the professionals or secured creditors will share in any avoidance recovery, a defendant can argue that avoidance of the transfer will not benefit the estate. Courts have come to varying results on this issue. Compare In re S&D Foods, Inc., 110 B.R. 34 (Bankr. D. Colo. 1990) (no benefit to estate where only secured creditor will recover proceeds); In re Huntsville Small Engines, Inc., 228 B.R. 9 (Bankr. N.D. Ala. 1998) (full and total assignment of avoidance action proceeds to secured creditor for no consideration resulted in no benefit to estate if creditor prevailed in avoiding the transfer) with In re Trans World Airlines, Inc., 163 B.R. 964 (Bankr. D. Del. 1994) (benefit to the estate is construed broadly; no requirement that avoidance action recovery be distributed in whole or part to creditors). Investigation into the facts underlying the bankruptcy case and what, if any, benefit to the estate will result from the avoidance may provide the defendant an opportunity to move for dismissal of the avoidance action.
Some defendants have succeeded in raising res judicata principles to prevent avoidance of a transfer when the confirmed plan of reorganization did not explicitly permit post confirmation prosecution of the action. 11 U.S.C. § 1123(b)(3)(B) states that a plan may provide "for the retention and enforcement for the debtor, by the trustee or by a representative of the estate appointed for such purpose, of any such claim or interest." Courts have struggled with a debtor's ability to prosecute an avoidance action where retention is not specifically provided for in a confirmed plan. The legal theory rests in concepts of res judicata. If a creditor's claim is not contested but is fully allowed in a plan the court may bar the debtor under res judicata principles from pursuing the action because the plan resolved all issues between the debtor and
