What is a Fraudulent Conveyance?

For more than three decades, Norman Kinel has gained valuable skills in the field of bankruptcy, litigating numerous cases on behalf of his clients. In his current duties, he serves as a partner in the New York office of Squire Patton Boggs LLP and also serves as the National Chair of Creditors’ Committee Practice Group. During the course of his career, Norman Kinel has gained extensive experience in various legal areas, including fraudulent conveyances.

A fraudulent conveyance refers to the transfer of property to another individual in order to avoid payment of a debt or potential debt, to ensure the property is out of creditors’ reach, especially during bankruptcy proceedings or when they are just about to begin. Fraudulent conveyance can involve a company or an individual, whereby property is transferred to family, friends, or other third parties.

Under the Uniform Fraudulent Transfer Act (UFTA), there are various factors that determine if a fraudulent conveyance occurred. This includes whether the transfer was made to an insider such as a family member and whether the debtor retained possession or control of the property after the transfer. Other considerations include if a debtor had been threatened with legal action before the property transfer was made, if the debtor received payment for the transfer of assets, and whether they transferred a substantial portion or all of their assets.

The Difference between Actual and Constructive Fraudulent Conveyances

 

Norman Kinel

Norman Kinel is an experienced attorney working as a partner at Squire Patton Boggs in New York. Over the course of his career, Norman Kinel has handled a large number of complex Chapter 11 cases involving intricate legal situations, such as litigation involving fraudulent conveyances. Defined most broadly, a fraudulent conveyance involves the transfer of a debtor’s assets to a third party with the intention of preventing creditors from gaining access to them as part of satisfying a claim.

Bankruptcy law recognizes two different types of fraudulent conveyances: actual and constructive fraud. Actual fraud involves an explicit intent to defraud the creditors involved. To qualify as actual fraud, a transfer must take place within a year of when the bankruptcy petition was filed and be made with intent to defraud. Proof of intent is required. Courts have created certain tests to indicate intent, such as a transfer to a newly established corporation or the existence of a special relationship with the third party.

Constructive fraud involves a transfer made without adequate consideration and occurs when debtors receive less than reasonably equivalent value for a transfer. Also, the transfer must happen when the debtor is unable to pay debts when the transfer is completed or as a result of the transfer. In this situation, proceedings focus not on proving intent but on the question of what qualifies as reasonably equivalent value.