Fraudulent transfer law is widely applied today to challenge financial transactions when debtors are insolvent, on the verge of insolvency, or when the transfer makes them insolvent. Suspicion that a fraudulent transfer has occurred may arise when, after a transfer a company is unable to pay its creditors.
Transfers can involve actual or constructive fraud – or both – depending on the company’s financial state when the transaction is completed. Because testimony and establishing intent often yields inconclusive results, courts may utilize different methods of analysis, called “objective tests,” to determine whether a transaction is “constructively fraudulent.”
One example is the “Unreasonably Small Capital” test. A company is determined to have unreasonably small capital if, at the time of the transaction(s) in question:
▪ The company is insolvent
▪ All its assets have been encumbered
▪ The company has insufficient cash flow
▪ The company has a significant reduction in working capital
▪ The company’s financial state is unfavorable to creditors in that payment is unlikely
Despite the many complex methods of analysis applied in such cases it can difficult to prove that a transfer is constructively fraudulent. In fact, creditors often have had to settle their fraudulent transfer claims for less-than-optimal amounts. Participants in transfers, on the other hand, may be perceived as more advantaged, taking on risky acquisitions at what often proves to be the creditors’ expense.
If you would like more information about fraudulent transfers, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.
The attorneys at Windtberg & Zdancewicz, PLC, provide Arizona residents and businesses with experienced legal representation in all collection matters. We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.