If you transfer property for little or no consideration, a “fraudulent transfer” likely exists. A second means of proving a fraudulent transfer is when a transfer renders the debtor insolvent or near insolvency when the debtor is insolvent just before the actual transfer.
To prove an alleged fraudulent transfer based on insolvency you must show that: (1) a transfer was made, (2) without the debtor receiving a reasonably equal dollar value in exchange, and (3) at the time of the transfer the debtor was or was close to being insolvent and because of the transfer the debtor becomes insolvent.
The NJ Fraudulent Transfer Act establishes three tests to determine insolvency. They are:
Another means of proving a fraudulent transfer under NJ law involves the debtor operating their business at a time when the debtor’s funds are inadequate to operate the business in the ordinary course.
When this type of business fraud is alleged, three elements must be proven: (1) a transfer was made by the debtor, (2) without the debtor receiving a reasonably equal value in exchange, (3) the debtor is an under-capitalized business. Both existing and future creditors have standing to avail themselves of protection under the Act, especially if they extended credit or provided capital without knowledge of the under-capitalized business.
The above description is perhaps the most common under the NJ Uniform Fraudulent Transfer Act. A cause of action exists when a debtor makes a transfer of money, property or assets just before the debtor is about to incur a significant liability debt or when the entity is incapable of paying its bills. Here you do not have to prove that the debtor actually intended to defraud his or her creditors when the transfer was made. Your case is proven by virtue of the fact you (1) can’t get paid, (2) the debtor transferred assets or property without receiving in response equal or reasonably equal consideration.
New Jersey has legal remedies available to individuals and businesses that have been the subject of a fraudulent transfer. These remedies include: (1) voiding the transfer or obligation to satisfy the debt, (2) obtaining a prejudgment seizure against the transferred asset or property of the transferee, (3) restraining the further transfer or relocation of the asset, (4) seeking the appointment of a receiver to protect the asset, (5) damages.
The Fraudulent Transfer Act is particularly helpful to a victim of a fraudulent transfer since the primary remedy under the law is to set aside the fraudulent transfer, regain possession or the value of the property or funds transferred, to satisfy the creditor’s claim.
Under the UFTA, creditors of bankrupt or insolvent businesses who wrongfully paid salaries, dividends, profits, or made loans to shareholders, family members and others without receiving fair consideration in return, are entitled to have those transfers, funds set aside. For example, father’s pre-death transfer of funds to his children was set aside to satisfy his wife’s claim under an equitable distribution agreement when it was discovered that the transfer left the husband insolvent.
As mentioned earlier, a creditor in NJ has recourse against a transferee of fraudulently transferred property. If the creditor can set aside a transfer, he or she can pursue the transferee and obtain a judgment against the transferee (plus the transferor) for damages and other relief. A transferee may have defenses to a creditor’s attempt to void a transfer, which are unavailable to the transferor debtor who made the transfer. It depends on a number of factors.
Fredrick P. Niemann Esq.
Because the success of fraudulent transfer claims is so fact sensitive, you should consult with an experienced NJ business law attorney at Hanlon Niemann & Wright. Contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.
