Elements Of Fraudulent Transfers Under Bankruptcy Code And TUFTA

• Jurisdiction: United States,Federal,Texas
• Law Firm: Freeman Law
• Subject Matter: Criminal Law, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, White Collar Crime, Anti-Corruption & Fraud
• Author: Mr Gregory Mitchell
• Published date: 05 January 2023

This is the second of an expected five-part series on fraudulent transfers. In my first blog, I laid out the basic statutory framework, as well as described generally the difference between actual and constructively fraudulent transfer. In this second blog, we will take a detailed look at the elements of a fraudulent transfer under both the Bankruptcy Code as well as Texas law.

Actual Fraudulent Transfer

Section 548(a)(1)(A) of the Bankruptcy Code provides the statutory authority to enable avoidance of an actual fraudulent transfer. The statute provides that an actual fraudulent transfer occurs when a transfer is made "with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted."

Plaintiffs must provide evidence that the Debtor made each transfer with actual intent to hinder, delay, or defraud "any entity to which the debtor [is] ... indebted." ' 548(a)(1)(A); Furr v. TD Bank, N.A. (In re Rollaguard Sec., LLC), 591 B.R. 895, 918 (Bankr. S.D. Fla. 2018) ("In order to prosecute a claim based on actual intent to hinder, delay, or defraud a creditor, the plaintiff must show that the alleged fraudulent intent is related to the transfers sought to be avoided.").

Section 24.005(a)(1) of the Texas Uniform Fraudulent Transfer Act ("TUFTA") provides the statutory authority under Texas law to enable the avoidance of an actual fraudulent transfer. The statute, similar to the Bankruptcy Code provision, provides that an actual fraudulent transfer occurs when a transfer is made "with actual intent to hinder, delay, or defraud any creditor of the debtor."

The elements of an actual fraudulent transfer under either the Bankruptcy Code or TUFTA are:

1. a creditor;
2. a debtor;
3. the debtor transferred assets shortly before or after the creditor's claim arose; and
4. with actual intent to hinder, delay, or defraud any of the debtor's creditors."

See In re Northstar Offshore Group, LLC, 616 B.R. 695 (Bankr. S.D. Tex. 2020 (Isgur)); Matter of Life Partners Holdings, Inc., 926 F.3d 103, 117 (5th Cir. 2019) (citation omitted). Each of these elements will be analyzed in turn.

Creditor

Regarding the first element - the existence of a creditor - "the burden is on the Plaintiffs to demonstrate the existence of an actual creditor with an allowable claim against the debtor." In re Northstar, 616 B.R. at 724. Further, "the so-called 'triggering' creditor must be the same creditor on both the transfer date and the date of commencement of the case." Id. "If there is no [such] creditor . . . the...