Fraudulent Conveyance – What Is It, And What Does it Mean?

Fraudulent Conveyances Generally

A fraudulent conveyance is where a debtor unlawfully transfers assets to another person or entity, usually with the intent to hinder, delay, or outright prevent a creditor from collecting on that asset.

It is best illustrated by a hypothetical example:

Business A has had a tough couple of years due to the economy and has not met its obligation to Bank B in some time.

Bank B is considering foreclosing on A’s assets.

In an effort to hinder the bank’s collection and maintain its business assets before B’s levy and foreclosure sale, A transfers a majority of its business assets to a newly formed business C for a nominal amount of consideration (money).

When B goes to collect from A, it finds A has transferred all its assets to a related business, C, in anticipation of the foreclosure.

Under Colorado law this would likely be a fraudulent conveyance.

In the example above, when A transfers assets to related business C, A does this knowing that it is defrauding creditor B.

Creditor B cannot normally foreclose on another’s assets because the transferee (entity or person receiving the debtor’s assets) because they are not the primary debtor. Absent a fraudulent conveyance law, B would be stuck with A’s debt without recourse to A because A would have no assets to satisfy the debt.

Fraudulent Conveyances in Colorado

Colorado recognizes two types of fraudulent conveyances:

1) Transfers fraudulent as to present and future creditors.The debtor transferred assets with an actual intent to hinder, delay, or defraud any creditor of the debtor or without receiving reasonably equivalent value in exchange for the transfer (C.R.S. 38-8-105);

2) Transfers fraudulent as to present creditors. The debtor incurred an obligation or transferred assets without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation; or, the transfer was made to an insider for an antecedent debt, the debtor was insolvent and the insider knew he was insolvent (C.R.S. 38-8-106).

In the hypothetical example, A made a transfer under the first category. Was there actual intent to defraud B? Colorado has a number of factors that measure A’s intent under the fraudulent conveyance law. Some of those factors are:

The transfer or obligation was to an insider;

The debtor retained possession or control of the property transferred after the transfer;

The transfer or obligation was disclosed or concealed;

Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

The debtor removed or concealed assets.

A likely still retained some element of control of the assets by transferring it to related business C and A did not disclose the transfer to B. Further, by not disclosing, A concealed those assets from B so B would have difficulty locating those assets and A also executed the transfer after B was going to foreclose on A’s business assets.

Fraudulent conveyances can be a complex area, with defenses for both the creditor and transferee of the debtor’s assets. Martin Long has represented the bankruptcy trustee in legal action prosecuting fraudulent conveyances. As a former trustee for the U.S. Bankruptcy Court, with over thirty years experience, Attorney Martin Long is an expert in the industry with decades of experience in Bankruptcy Law in Loveland Colorado.

We also serve Aurora, Centennial, Highlands Ranch, Denver, Littleton, Castle Rock, Colorado and the Denver metro area with three convenient locations. For help with your financial matter, call the Law Office of Long & Long for a free initial consultation at 303-832-2655 or go to www.denverbankruptcylawyer.net and make a consultation request.