The transfer is fraudulent if made with actual intent to hinder, delay or defraud any creditor. Thus, if the transfer is made with the specific intent not to fulfill a specific responsibility, then this intention is real. However, when the debtor prefers one creditor to pay instead of the other who is fraudulent transfer. [1]
There are two types of fraudulent transfer – actual fraud and constructive fraud.Actual fraud usually involves a debtor who, as part of an asset protection scheme donates his assets are usually in a “confidential”, and leaves himself nothing to pay his creditors. Constructive fraud is not associated with fraudulent intent, but rather the basic economics of the transaction if it was for less than reasonably equivalent value at a time when the debtor was in a distressed financial situation.For example, if the debtor has simply been more generous than they should have or, in business transactions, the company had to cease their activity earlier to preserve capital (see generally, trafficking). In a successful claim, 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 assignees may also be targeted, although they generally have stronger defense of the immediate transferees. [2]
Despite the fact that the fraudulent transfer law originally developed under a relatively simple agricultural economy, is now widely challenging modern complex financial transactions such as leveraged buy-outs. [2]
Fraudulent transfer of responsibility will often turn to the debtor’s financial situation at a particular point in the past. The historical analysis is required “dueling” expert testimony from both plaintiffs and defendants, which often resulted in a costly process and inconsistent and unpredictable results. [2] The courts and scientists have recently developed market-based approaches in an effort to make the analysis simpler, more consistent across cases, and more predictable. [2]
Badges of fraud
Proof of actual intent is rarely available to a creditor that would require proof of an inner thoughts. Because of that, lenders often must 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: [1]
Insolvency due to the transfer;
The lack or inadequacy of consideration;
Family, or confidential relationship between parties;
The benefits of maintaining possession or use of property in question;
The existence of the threat of appeal;
The economic situation of the debtor at the time of transfer or after transfer;
The existence or cumulative effect of a series of transactions since the beginning of the financial difficulties of the debtor;
The general chronology of events;
The secrecy of the transaction; And
Deviation from the usual method or course of business.
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