FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

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Nursing home case_ Transfer of personal injury claim to family members deemed notfraudulent in suit brought by nursing home because court found transferor had notintended to incur debts beyond her ability to pay based on 3 years cost of nursing homeuntil she was eligible for Medicaid. Grace Plaza Of Great Neck v. Heitzler (2 nd Dept.2003) 2A.D.3d 780.Hold Over Law Practice – Sub lessee law firm held over utilizing corporate shield againstlandlord for rent where assets, including cases of firm were transfered withoutconsideration with intent to defraud. Parsons & Witmore v. Abady Luttati KaiserSaurborn & Mair, P.C. (1 st Dept 2003) 309 A.D. 2d 765In LBO situation despite the fact that corporation defaulted on Bonds in little more than ayear, there was no evidence that former partners believed the company would b e unableto pay debts . Projections, which seemed reasonable at the time, proved to be incorrect.MFS/Sun Life Trust-High Yield series v. Van Dusen Airport Services Co. (1995), 910 F.Supp. 913.Constructive fraud.Lack of fair consideration essential in case of constructive fraud.Fair consideration determination is fact specific to each case. Fact finder measureseconomic benefit of whole transaction to Debtor and then compares to value of propertyconveyed.FCA uses term without fair considerationFTA uses less that reasonable equivalent value (similar to Bankruptcy Code)• Was insolvent or Rendered insolvent• Retains unreasonably small capital for business Debtor is engaged or is about to engage in• Debtor intended or believed that it would incur debts that would be beyond ability to paywhen maturedFraudulent Transfer Issues In BankruptcyFraudulent transfers can be set aside under two different bankruptcystatutes. Section 548 of the Bankruptcy Code permits a fraudulent transfer madewithin two years of the commencement of the bankruptcy case to be recoveredunder the Bankruptcy Code. Section 544 permits the use of state law to set asidefraudulent transfers made within the applicable state statute of limitations; in NewYork, six years.
The terms of Section 548 are virtually identical with the provisionsof the Uniform Fraudulent Conveyance Act, adopted by most states, includingNew York 1 . A transfer is “fraudulent,” and thus may be voided, if (a) it was madewith actual intent to hinder, defraud or delay creditors, or (b) the transfer wasmade while the debtor was insolvent or left insolvent by the transfer and the debtorreceived less than a reasonably equivalent value in return for the transfer.The main differences between bringing an action under the Code, asopposed to State Law, is that under the Code: a) there is a 2 year reach backperiod, as opposed to the 6 yr State provision; b) State law generally requires thatthere be an actual creditor identified that existed at time of Transfer and createsdefenses that might have existed against that creditor whereas in Bankruptcy thetrustee sues in his own right; c) the State law generally has more stringent standardof proof and d) Section 548(a)(1)(b)(ii)(IV) allows the avoidance of a transfer toor for benefit of Insider under an employment contract and not in the ordinarycourse of business(i.e., offensive bonuses and golden parachutes.Assumed Agreement: In re Network Access Solutions Corp. 330 B.R. 67(Bankr. Del. 2005). Creditor’s Committee sought to avoid and recover largepayments made to 2 officers prior to Chapter 11 under their employmentagreement. However, earlier in the case the Debtor had successfully moved toassume the officers employment agreements. The Court found it would beantithetical for the court to have ruled the assumption was in the best interest ofthe debtor and then rule that the agreement presented a bad faith arrangement thatdid not give reasonably equivalent value. Moreover the Court held the Committeewas judicially esptopped from asserting the avoidance action since it supported theassumption and was assumed to have reaped the benefits of same.In bankruptcy the trustee has two years to bring action even if 6 yr statute expires as longas 6 yr statute did not run before date of petition.Statute of Limitations ran on property transfer from date of recording of new deed.Ehrler v. Cataffo (2 dept 2007) 42 A.D. 3d 424Section 548(a)(2) also excepts charitable contributions from avoidance ifnot more that 15% of gross annual income, or if it exceeds that amount wasconsistent with the Debtor’s past practices. (Religious or charitable entity ororganization is defined by reference to the Internal Revenue Code)1 Article 10 of the New York Debtor and Creditor Law.
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Nassau Academy of LawCLE Live Class
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McKinney's Debtor and Creditor Law
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BAKER & HOSTETLER LLP45 Rockefeller
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usiness of defendant Bernard L. Mad
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BACKGROUND, THE TRUSTEE, AND STANDI
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Madoff who received fraudulent tran
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ased on fictitious profits and for
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28. BLMIS funds were also used to p
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Madoff, and her niece, Shana Madoff
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42. Ruth Madoff was never an employ
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FIRST CAUSE OF ACTIONTURNOVER AND A
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66. At the time of each of the Two-
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Transfers; (b) directing that the S
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EIGHTH CAUSE OF ACTIONUNDISCOVERED
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TENTH CAUSE OF ACTIONDISALLOWANCE O
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111. Mrs. Madoff benefited from the
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WHEREFORE, the Trustee respectfully
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2(c)(3): (a) preserving the Subsequ
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Page 144 and 145: FRAUDULENT TRANFERENCESRonald M. Te
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FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

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