Fraudulent Transfers | Burdens Of Proof

• Jurisdiction: United States,Federal
• 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: 16 February 2023

So this is the fifth and final installment of my five-part series on fraudulent transfers. In previous blogs, I laid out the basic statutory framework regarding fraudulent transfers, as well as described generally the difference between actual and constructively fraudulent transfers (Part 1). In Part 2, we took a detailed look at the elements of a fraudulent transfer under both the Bankruptcy Code as well as Texas law. In Part 3, we took a deeper dive into the badges of fraud that courts use to analyze the existence of actual fraudulent intent. In Part 4, we took a more detailed look at insolvency. In this final installment, we're going to address the various burdens of proof that affect parties on both sides of a transaction.

With respect to actual fraudulent transfers, 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."). Therefore, it's important to note that Plaintiff's burden applies separately to each transfer, and not just some general intent regarding all transfers.

From Part 2, you will recall that the first element of an actual fraudulent transfer under either the Bankruptcy Code or the Texas Uniform Fraudulent Transfer Act ("TUFTA") is the existence of a creditor. Regarding that first element, 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 [plaintiff] is powerless to act under ' 544(b)(1). Id.

Plaintiffs further have the burden of establishing fraudulent intent. From previous installments, recall that courts typically rely on circumstantial evidence, known as badges of fraud, to infer intent. We learned in Part 3 that there is no clear authority on how many badges of fraud must be present to sufficiently establish actual intent under either the Bankruptcy Code or TUFTA. We do know that, as a matter of law, a finding of...