It also addresses the tests which may be performed by the analyst in a fraudulent conveyance analysis.
FRAUDULENT CONVEYANCE THIRD PARTY CODE
The following summarizes the Code and related law for fraudulent conveyances. If the court determines the transfer was a fraudulent conveyance, the trustee may recover the property (avoid the transfer) as part of the estate. These analyses may be prepared for the plaintiff, defendant, or as a neutral in an arbitration setting. The purpose of the analyst’s expert opinion is the determination of whether the transfer(s) in question meet the qualifications of either actual or constructive fraud. The most important of which is that the Code is silent on the definition of “reasonably equivalent value.” Multiple analytical dilemmas exist in these scenarios. has unreasonably small capital on the transfer date.is unable to pay its debts as they became due, or.Such a transfer may be considered a fraudulent conveyance if the debtor: Various state and federal courts have accepted the use of “badges of fraud” analyses to assist in proving intent in these matters.Ĭonstructive fraud focuses on transfers where the estate received “less than reasonably equivalent value” in exchange for the transfer. As one may imagine, proving intent is a difficult proposition for many trustees and creditor plaintiffs seeking recovery in bankruptcy court. Actual fraud focuses on the “actual intent to hinder, delay, or defraud” creditors of the estate.
Alternatively, a third-party creditor of the estate may sue the estate seeking the avoidance of the allegedly fraudulent transfer.īankruptcy law differentiates fraudulent conveyances as either actual fraud or constructive fraud. In this instance, the trustee may, with the bankruptcy court’s approval, set aside the conveyance. In order to assist the trustee to fulfill his or her duties, bankruptcy law provides the power to set aside or “avoid” certain asset transfers from the estate.įor example, if a debtor transferred estate assets to a third party with the intent to defraud its creditors, then the transfer may be categorized as a fraudulent conveyance. The Code outlines the many duties and powers of the trustee. The primary purpose of the trustee in a bankruptcy setting is the fair and efficient administration of the estate. The defendants are either the estate or the trustee who either approved or did not set aside the allegedly fraudulent conveyance. The plaintiff alleges that but for certain fraudulent transfers, the creditors would have collected more of their outstanding debts. The plaintiff is often a trustee, debtor-in-possession (“DIP”), or creditor of the estate. Such actions generally occur in a bankruptcy context and address the issues described in the United States Bankruptcy Code (“Code”). IntroductionĪnalysts are often called on to perform examinations and to issue expert opinions related to allegedly fraudulent conveyances (also known as fraudulent transfers). Finally, this discussion should assist the reader (whether an analyst, trustee, counsel, plaintiff, creditor, or debtor-in-possession) in better understanding the complexities and requirements of fraudulent conveyance actions. This discussion also summarizes possible “badges of fraud” analysis often applied to prove fraudulent intent in conveyance actions. This discussion summarizes these criteria and describes some of the relevant tests conducted in fraudulent conveyance analyses.
Generally, the analysis of fraudulent conveyances involves the determination and testing of whether a transfer meets the criteria of either actual or constructive fraud. The law in this area is contained in the United States Bankruptcy Code and is centered around the avoidance powers granted to trustees and other relevant parties, specifically Section 548 fraudulent transfers and obligations. Analysts are frequently asked to provide expert opinions in these actions for trustees, debtors-in-possession, creditors, and other third-party plaintiffs. Fraudulent transfer allegations are also common in transactions such as leveraged buy-outs and recapitalizations. Disputes over allegedly fraudulent conveyances have become more common in bankruptcy cases.
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