A fraudulent transfer is a wrongful attempt to avoid a debt by improperly transferring assets to a third party or transferring assets for less than fair value while insolvent or leading to insolvency. Each state has its own statute regarding fraudulent transfers, often similar to the Uniform Voidable Transactions Act (UVTA) or the Uniform Fraudulent Transfer Act (UFTA). Section 548 of the Bankruptcy Code governs fraudulent transfers in bankruptcy, providing a trustee with authority to avoid or unwind such transfers. This framework prevents debtors from thwarting creditors’ collection efforts. Outside of bankruptcy, creditors may seek to avoid fraudulent transfers under state law. In bankruptcy, only a trustee or debtor-in-possession can pursue these claims for the benefit of all creditors.

Fraudulent transfer claims fall into two categories: actual fraud and constructive fraud. Actual fraud occurs when a debtor knowingly transfers assets to hinder, delay, or defraud a creditor. Proving actual fraud involves identifying “badges” of fraud, such as transfers to insiders or retention of control over the property. Constructive fraud occurs if the debtor received less than “reasonably equivalent value” for the transfer and was insolvent at the time or rendered insolvent by the transfer. Determining “reasonably equivalent value” often requires a detailed factual analysis and expert testimony.

Defenses to fraudulent transfer claims include disputing the elements under Section 548, such as the presence of fraud indicators or the adequacy of value received. Other defenses include the safe harbor provision under Section 546(e), which protects certain financial transactions, and the good faith defense under Section 550(b), which protects transferees who acted in good faith and provided value. Given the complexities of these claims and defenses, it is crucial for parties to seek competent legal counsel to protect their rights.

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Photo of David Fournier David Fournier

David represents various interests in complex bankruptcy proceedings in the District of Delaware and other jurisdictions. His clients include corporate debtors, secured and unsecured creditors, official creditors’ committees, foreign representatives, and others. David also has extensive experience as a mediator in bankruptcy litigation.

Photo of Evelyn Meltzer Evelyn Meltzer

Evelyn focuses her practice on corporate bankruptcy, insolvency, distressed M&A, and creditors’ rights. With more than 20 years of experience, Evelyn understands all facets of a problem or opportunity, strategically devising insightful, innovative, and practical solutions that protect and advance her clients’ interests.

Photo of Kenneth Listwak Kenneth Listwak

Ken has broad experience in bankruptcy and reorganization matters, including adversary proceedings and contested matters in complex bankruptcy cases, and advising and guiding clients through complex issues involving bankruptcy law and Delaware legal practice.

Photo of Tori Lynn Remington Tori Lynn Remington

Tori is an associate in the firm’s Finance and Financial Restructuring + Insolvency practice groups. She has been involved in complex chapter 11 proceedings and litigation matters, representing various parties in interest, including debtors-in-possession, DIP lenders, stalking horse purchasers, and creditors. Tori also…

Tori is an associate in the firm’s Finance and Financial Restructuring + Insolvency practice groups. She has been involved in complex chapter 11 proceedings and litigation matters, representing various parties in interest, including debtors-in-possession, DIP lenders, stalking horse purchasers, and creditors. Tori also has experience in the Court of Chancery representing assignees in Delaware ABCs.