The Creditor sued the both the Debtor and Transferee for fraudulent transfer and civil conspiracy.
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Also, the odds are good that the transfer here will face a fraudulent transfer attack as well.
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So, the Receiver filed fraudulent transfer actions under the Texas Uniform Fraudulent Transfers Act (TUFTA) against the Committees.
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Jointly appealing the decision, the Engineer and Trust argued that the fraudulent transfer laws are not meant to encompass claims against future, unknown creditors.
Despite a sovereign immunity defense from the IRS, the Bankruptcy Court held that the debtor corporation could recover the extra funds on fraudulent transfer grounds.
This is commensurate with the purpose of the fraudulent transfer laws which is to preserve the assets of the debtor for the benefit of unsecured creditors.
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The Committees first argued that a Receiver cannot bring a fraudulent transfer action, but rather the suckers must do that in their own names and for themselves.
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The Statute of Limitations for a fraudulent transfer action having long run, the Husband filed a motion to dismiss those claims and eventually the Trustee withdrew them entirely.
There is another important, and probably more practical, aspect to this case which is the slipshod manner by which the Bankruptcy Trustee attempted to prove up his fraudulent transfer case.
Moreover, Debtors should not be confident of avoiding a fraudulent transfer even if they were not in financial distress or otherwise met the technical requirements for avoiding a constructive fraudulent transfer.
Debtors may also not appreciate the social embarrassment that may arise when a creditor attempts to reverse a charitable gift as a fraudulent transfer, particularly if it is their local Church.
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Some of my previous articles have pointed out that another significant downside of being caught in a fraudulent transfer is that a bankruptcy court can (and often do) use that to deny a debtor a discharge.
In other words, a transfer that might normally pass muster and not be determined to be a fraudulent transfer when done with an outsider, could very well be a fraudulent transfer when done with an insider.
Where this trips up planners is that they will often presume that because an asset received back by a debtor has the same tax value as what the debtor gave up, there could be no fraudulent transfer.
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The outcome of this case on these facts should not come as any surprise to even the most novice follower of fraudulent transfer law, but that should detract from an important lesson to be gained from this case.
The lesson here is one for creditors: It is not particularly easy to bring a fraudulent transfer action, especially where foreign transactions and entities are involved such that proof of the fraudulent transfer may be difficult to obtain.
Among his other activities, the Trustee filed an adversary action against the Lender, seeking to set aside the Promissory Note and Security Agreement as to Tanglewood, on the basis that the transaction was a fraudulent transfer and therefore avoidable.
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The Court also pointed out that it had been liberal in the time given to Kremen to prove his fraudulent transfer case, but at the end of the day this paucity of evidence was not going to get him past summary judgment.
In a recent case out of the Eastern District of Virginia, a U.S. magistrate judge found that a defendant corporation which transferred IP rights to another corporation without any consideration had made a fraudulent transfer of those IP rights, which included domain names.
To recover on the Judgment, the landlord brought a fraudulent transfer action against the Debtor and his wife for transfers the Debtor made into various entireties accounts in Pennsylvania during his 35 years with the law firm and his long marriage with his wife.
The court further held that the transfer was fraudulent and that he had breached his fiduciary duties to the debtors.
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Wait until a creditor comes calling and there is a greater risk a transfer will be invalidated as fraudulent.
The Adversary Action alleged fraudulent transfers under both Bankruptcy Code section 548 and the Colorado Uniform Transfer Act.
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