Fraudulent Transfer Issues
DIS: whereas a preference is strictly mechanical, a fraudulent transfer involves the transfer of property of the Estate for inadequate value (“constructive fraud”) or actual fraud.
Key Inquiry: effect the transfer has on the Estate
e.g. Conditions for a fraudulent transfer mirror the Uniform Fraudulent Transfer Act 740 ILCS 160/1
- A gift or transfer of debtor’s property
- for little or no value
- while debtor was or became insolvent as a result
- Debtor knew he could not pay his debts or obligations
- With intent to hinder, delay or defraud creditors
Avoiding Fraudulent Transfers
§548 of the Code grants Trustee the ability to recover fraudulent transfers on behalf of the Estate.
- According to §548 the Trustee may avoid a fraudulent transfer that occurred within one year of the filing of the subject case, unless State law provides a longer statute of limitations.
- The Illinois Fraudulent Transfer Act (UFTA) can extends the 1 year limitation to 4 years. Establishing a case for recovery
- 2 out of the following must be proven before the Court can find a fraudulent transfer:
- Actual fraud: intent to hinder delay or defraud;
- Constructive fraud: inability to repay debts;
- Less than equivalent value for the transfer.