The Pennsylvania Uniform Fraudulent Transfers Act, (PUFTA) 12 Pa.C.S.A. § 5101 et seq., grants a statutory remedy to creditors where a debtor has acted to hinder his creditors and identifies several factors for scrutinizing transfers as fraudulent to creditors. Where a transfer has been proven to be fraudulent as to a debtor’s creditors, remedies available to a creditor include voiding the fraudulent transfer, attaching the transferred property, injunctions against the debtor’s future disposition of assets, and Court appointment of a receiver to take charge of fraudulently transferred assets.
The statutory language defines a fraudulent transfer as a transfer made by a debtor “with actual intent to hinder, delay or defraud,” or a transfer made by a debtor “without receiving reasonably equivalent value in exchange for the transfer or obligation.” In assessing information to determine the efficacy of pursuing the collection of a debt where the debtor makes representations that he is insolvent and unable to pay the debt, it is important that the creditor diligently pursue certain information regarding the debtor’s transfer of assets and property to establish that the debtor has acted with “intent to hinder, delay or defraud” one or many creditors.
The most common kinds of fraudulent transfers seen in collection efforts are sham “paper transfers;” transfers in which the debtor attempts to transfer legal title to property or assets while retaining the use and enjoyment of the property or assets. In the context of corporate debtors, often the transfer of property or assets will be from the corporation to an “insider” for less than fair market value, yielding an undercapitalized corporation without sufficient assets and cash to satisfy a debt or judgment. These sham transactions are particularly common where a corporation engages in a business that is cyclical and on the downslide of a cycle – the corporate “insiders” will squeeze substantially all of the income and assets from a corporation when business slows, leaving the corporation’s suppliers and other debtors with an insolvent, empty shell corporation that cannot satisfy its debts.
Take, for instance, a situation in which a debtor corporation is threatened to be sued or sued for a substantial debt, and the corporation subsequently sells corporate assets or property to a corporate shareholder, board member, or officer at a “discount” of the property or asset’s fair market value – if the debtor then secures a judgment against the corporation, the sale of the corporation’s assets to a corporate insider at a “discount” may be shown to have been a fraudulent transfer.
Another example of a fraudulent transfer often seen in collections is the popularly believed notion that a debtor can escape a financial obligation by “putting property in someone else’s name,” – most often a spouse or other family member – while retaining use and enjoyment of the assets or property. For example, if an individual debtor with a money judgment against him engages in a sham sale of his car to his daughter, but no funds exchange hands or a nominal amount changes hands, and the debtor continues to use the car as if it was his own, the sham sale can most likely be avoided, and the car attached as property of a debtor pursuant to a money judgment.