Fraudulent Conveyance

Two kinds are usually recognised. In an actual fraud case, the debtor transfers property intending to hinder, delay or cheat creditors. In constructive fraud, intent need not be proved: the debtor was insolvent, or was made insolvent by the transfer, and received less than reasonably equivalent value. Typical cases include moving a house to a relative, selling business assets cheaply to a related company, and debt-funded buyouts that strip a company of its assets. A trustee, liquidator or creditor can ask a court to set the transfer aside or to recover its value from the recipient, within a look-back period that varies by country. Terms also differ: “fraudulent transfer” in the United States, “transactions at an undervalue” in the UK, and similar provisions in the insolvency and property laws of other countries. The word fraudulent does not always imply deceit. A buyer of distressed assets looks at the price paid and the seller's solvency to judge clawback risk.

A company facing a large court claim sells its main warehouse to a firm owned by the managing director’s brother for half the market price, then goes into liquidation. The liquidator shows the company was insolvent at the time and received too little. A court sets the sale aside, the warehouse returns to the estate, and the proceeds go to creditors including the claimant.