Badges of Fraud, Fraudulent Conveyance and Personal Liability

In a decision issued on January 14, 2013, the Superior Court of Justice found, inter alia, that the Defendants had conveyed property with fraudulent intent, which established grounds for a finding of personal liability against the director and sole shareholder of the  Defendant corporations.

The court looked to jurisprudence to identify the following “badges of fraud” pointing to a fraudulent intent “to defeat, hinder, delay, etc.”:

  1. The effect of the transaction is to delay and defeat creditors;
  2. The transfer was effected with unusual haste;
  3. The absence of a sound business or tax reason for the transaction;
  4. The transferor has few remaining assets after the transfer;
  5. Transfer to a non arm’s length person;
  6. There are actual or potential liabilities facing the transferor;
  7. Grossly inadequate consideration; and
  8. The transferor remains in possession or occupation of the property for his own use after the transfer.

The court found that each factor existed in the case at bar, establishing the requisite fraudulent intent behind the conveyance of the Defendants’ property. Furthermore the Court found that it was established in jurisprudence that such “[f]raudulent transfers allow the establishment of personal liability of the individual who is the “operating mind” and sole director of both the transferor and transferee corporations involved in the conveyance.”

For more information, see the decision at:

David Moon, B.A., J.D.

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