Fraudulent conveyance

A fraudulent conveyance, or fraudulent transfer, is an attempt to avoid debt by transferring money to another person or company. It is generally a civil, not a criminal matter, meaning that one cannot go to jail for it, but in some jurisdictions there is potential for criminal prosecution. It is generally treated as a civil cause of action that arises in debtor/creditor relations, particularly with reference to insolvent debtors. The cause of action is typically brought by creditors or by bankruptcy trustees. A fraudulent conveyance, or fraudulent transfer, is an attempt to avoid debt by transferring money to another person or company. It is generally a civil, not a criminal matter, meaning that one cannot go to jail for it, but in some jurisdictions there is potential for criminal prosecution. It is generally treated as a civil cause of action that arises in debtor/creditor relations, particularly with reference to insolvent debtors. The cause of action is typically brought by creditors or by bankruptcy trustees. A transfer will be fraudulent if made with actual intent to hinder, delay, or defraud any creditor. Thus, if a transfer is made with the specific intent to avoid satisfying a specific liability, then actual intent is present. However, when a debtor prefers to pay one creditor instead of another, that is not a fraudulent transfer. There are two types of fraudulent transfer—actual fraud and constructive fraud. Actual fraud typically involves a debtor who as part of an asset protection scheme donates his assets, usually to an 'insider', and leaves himself nothing to pay his creditors. Constructive fraud does not relate to fraudulent intent, but rather to the underlying economics of the transaction, if it took place for less than reasonably equivalent value at a time when the debtor was in a distressed financial condition. It is important to note that the actual distinction between the two different types of fraud is what the intentions of the debtor were. For example, where the debtor has simply been more generous than they should have or, in business transactions, the business should have ceased trading earlier to preserve capital (see generally, wrongful trading). In a successful lawsuit, the plaintiff is entitled to recover the property transferred or its value from the transferee who has received a gift of the debtor's assets. Subsequent transferees may also be targeted, although they generally have stronger defenses than immediate transferees. Although fraudulent transfer law originally evolved in the context of a relatively simple agrarian economy, it is now widely used to challenge complex modern financial transactions such as leveraged buyouts. Fraudulent transfer liability will often turn on the financial condition of the debtor at a particular point in the past. This analysis has historically required 'dueling' expert testimony from both plaintiffs and defendants, which often led to an expensive process and inconsistent and unpredictable results. Courts and scholars have recently developed market-based approaches to try to make this analysis simpler, more consistent across cases, and more predictable. Evidence of actual intent is rarely available to a creditor for it would require proof of someone’s inner thoughts. Because of that, creditors often have to rely on circumstantial evidence of fraud. To prove actual intent, the courts have developed “badges of fraud,” which, while not conclusive, are considered by the courts as circumstantial evidence of fraud: Under Australian law, if a transaction is entered into by a company which subsequently goes into liquidation, and the transaction was entered into by the company for the purpose of defeating, delaying or interfering with the rights of creditors during the 10 years prior to the relation back day, the courts may set it aside. The relation-back day is defined as either the day upon which the application for the company's winding-up was filed, or the date of the commencement of liquidation. In Anglo-American law, the doctrine of Fraudulent Conveyance traces its origins back to Twyne's Case, in which an English farmer attempted to defraud his creditors by selling his sheep to a man named Twyne, while remaining in possession of the sheep, marking and shearing them. In the United States, fraudulent conveyances or transfers are governed by two sets of laws that are generally consistent. The first is the Uniform Fraudulent Transfer Act ('UFTA') that has been adopted by all but a handful of the states. The second is found in the federal Bankruptcy Code.