Fraudulent Conveyance

Fraudulent transfer is a transfer of the debtor’s assets to a third party to obstruct creditors from accessing the assets to satisfy the creditor claims.  In a bankruptcy proceeding, the trustee is allowed to set aside or “avoid” certain transfers of the debtor’s assets that unfairly place assets beyond the creditor’s reach.  

Fraudulent conveyance can be of the following types:

Actual Fraud – This is a transfer made with actual intent to hinder, delay or defraud creditors. 

Constructive Fraud – This is a transfer made while insolvent, without receiving reasonably equivalent value.   Constructive fraud is committed when in an exchange for transfer the debtor receives less than reasonable equivalent value and that the debtor is unable to pay its debts either at the time the transfer was made or as a result of the transfer.  

While intent of the transfer is subject to question in cases of actual fraud, the reasonable equivalent value is the matter for investigation in constructive fraud.  

The timing of the transfer is important as only the transfers completed within a year of filing of the petition for bankruptcy may be challenged and reversed.  Once the transfer is determined to be fraudulent, the trustee may recover the value of the property or the property and include it in the bankruptcy estate.  

The courts look at the following factors to determine actual fraud.  No single factor will determine a court’s decision, but the presence of several of these factors can help prove fraud:

(1) the transfer or obligation was to an insider;

(2) the debtor retained possession or control of the property transferred after the transfer;

(3) the transfer or obligation was concealed;

(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

(5) transfer was of substantially all the debtor’s assets;

(6) the debtor absconded;

(7) the debtor removed or concealed assets;

(8) the value of the consideration received by the debtor was not reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

(9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

(10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and

(11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. 

A&C focuses on financial analysis of material transactions, the forensic reconstruction of accounting books and records, fraudulent conveyance, solvency and preference analyses, and evaluating plan feasibility in bankruptcy and reorganization proceedings.  A&C’s skilled professionals partner with trustees and creditor committees to ascertain whether fraud may be an issue. 

A&C also provides business valuations of companies in and/or emerging from bankruptcy, analyses and/or evaluations of debtor cash flow projections and plans of reorganization, analyses of debtor’s pending claims and adversary proceedings, analyses of debtor’s operating results prior to and/or resulting from specific transactions, assistance with post-bankruptcy reorganization and restoration of operations and other services. A&C’s financial forensic experts provide trustees and bankruptcy counsel and the debtors or creditors they represent with bankruptcy and reorganization services.

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