Fraudulent transfer law allows a creditor to set aside a transfer or obligation that unfairly reduced what was available to satisfy debts. Despite the name, most successful claims involve no dishonesty at all.
Actual fraud requires intent to hinder, delay or defraud creditors. Because intent is rarely admitted, courts look at badges of fraud: a transfer to an insider, retention of possession or control after transfer, concealment, a transfer of substantially all assets, the debtor’s insolvency around the time, and consideration far below value.
Constructive fraud requires no intent at all. It is generally established where the debtor received less than reasonably equivalent value and was insolvent, became insolvent, was left with unreasonably small capital, or intended to incur debts beyond its ability to pay. This is the more common and more dangerous theory, because ordinary transactions can satisfy it.
What gets caught. Distributions to owners while a company is failing; transferring property to a spouse or a related entity; guaranteeing an affiliate’s debt without benefit; and selling assets to an insider at an optimistic valuation.
Remedies include avoiding the transfer, recovering the property or its value from the transferee, and attachment. A good-faith transferee who gave value is generally protected to the extent of that value.
Practical guidance. Before any transfer at a time of financial stress, document the value received and the company’s solvency. Reconstructing either afterwards is far harder and considerably less persuasive.