Page 66 - Bankruptcy Volume 1

fraudulent and that were made or incurred within the two years fn 16 preceding the filing. Examples of
potential fraudulent transfers might include transfer of property to the custody of an insider, distributions
of equity, payment of affiliate debt, sale of property for less than its fair market value, a leveraged buy-
out that leaves the acquired company with unreasonably small capital, and the grant of a security interest
in personal property to a lender in exchange without adequate consideration.

Bankruptcy laws recognize that fraudulent transfers or obligations may be the result of both actual fraud
perpetuated on a creditor with intent by a debtor, and constructive fraud on the creditors, given the un-
derlying financial circumstances that surround the transaction. With respect to the former, 11 USC
548(a)(1)(A) permits the trustee to avoid a transfer of interest in property of the debtor or any obligation
incurred by a debtor that was made or incurred "with actual intent to hinder, delay, or defraud" creditors
(that is, actual fraud). Practitioners providing services involving fraudulent transfer claims are cautioned
that a finding of actual fraud is a question of fact to be determined by the trier of fact. Although practi-
tioners may not render conclusions as to whether a debtor’s acts are fraud, they are well suited to per-
form forensic and financial analyses that may assist the trier of fact by providing relevant information
about the transfers. Key to avoidance under 11 USC 548(a)(1)(A) is the difficult task of establishing the
intent of the debtor. Although the Bankruptcy Code provides no guidance regarding what factors should
be considered when determining intent, Section 4(b) of the Uniform Fraudulent Transfer Act (UFTA)
provides a series of factors indicative of fraudulent intent, referred to as the "badges of fraud," which are
often considered when evaluating potential intent. Per the UFTA, consideration may be given to whether
or not

 the transfer or obligation was to an insider;

 the debtor retained possession or control of the property transferred after the transfer;

 the transfer or obligation was disclosed or concealed;

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

 the transfer was of substantially all the debtor’s assets;

 the debtor absconded;

 the debtor removed or concealed assets;

 the value of the consideration received by the debtor was reasonably equivalent to the value of
the asset transferred or the amount of the obligation incurred;

 the debtor was insolvent or became insolvent shortly after the transfer was made or the obliga-
tion was incurred;

 the transfer occurred shortly before or shortly after a substantial debt was incurred; and

fn 16 Note 11 USC 544(b) permits the avoidance of transfers under state law, as well. In most instances, state law permits a longer pe-
riod preceding the filing.

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