FRAUDULENT TRANSFERS AND THE U.S. BANKRUPTCY CODE

By Fredrick P. Niemann, Esq. a New Jersey Fraudulent Transfer Attorney

Even good faith purchasers of property who are the recipients of fraudulent transfers are only partially protected by the law in New Jersey. Under the Bankruptcy Code, they get to keep the transfer to the extent of the value they gave for it, which means that they may lose much of the benefit of their bargain even though they have no knowledge that the transfer to them is fraudulent.

Often fraudulent transfers occur in connection with leveraged buyouts (LBOs), where the management/owners of a failing corporation will cause the corporation to borrow on its assets and use the loan proceeds to purchase the management/owner’s stock at highly inflated prices. The creditors of the corporation will then often have little or no unencumbered assets left upon which to collect their debts. LBOs can be either intentional or constructive fraudulent transfers, or both, depending on how obviously the corporation is financially impaired when the transaction is completed.
Although not all LBOs are fraudulent transfers, a red flag is raised when, after an LBO, the company then cannot pay its creditors.

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.  U.S. courts and legal commentators have recently developed market-based approaches to try to streamline the analysis of constructive fraud, and judges are increasingly focusing on these market based measures.

Contact me personally today to discuss your fraudulent transfer matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com/.

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