In the Ins and Outs of the Fraudulent Transfer Laws In a Failed Business Venture

HNWBusiness Law

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Fraudulent Transfer Attorney

Here’s an interesting case involving the fraudulent transfer law. In Carucci v. Regency Fin. Group LLC, the plaintiff loaned an accounting firm, $100,000. The firm never paid back the money that was due.  So the plaintiff sued, and the defendant failed to show up to court.  When a defendant does not show up in court judgment is automatically entered against them; it is called a ‘default judgment.’ While the lawsuit was pending, the defendant accounting firm filed for bankruptcy. In a classically deceptive manner the defendant’s wife formed another accounting firm and opened it for business in the same exact location of the old accounting firm (the one that filed for bankrupt). The new firm even used the same phone number and the same client list from the old business.

The defendant’s wife then went so far as to hire her husband, the defendant to do the accounting services on all of the firm’s old computers and the equipment now in bankruptcy court.

In response the plaintiff served what is known as a ‘writ of execution’ and attempted to empty all of the old company’s bank accounts.  Ultimately, the court ruled that the client list was an asset subject to seizure, but the plaintiff was unable to offer any testimony as to the value of the client list.  As a result, the court ruled that the defendants did not violate the New Jersey Uniform Fraudulent Transfer act by fraudulently transferring the old business’ assets to the newly formed business.

Whether or not you agree with the court’s decision is irrelevant – what’s important is that people who have businesses will often try everything possible to avoid losing everything they worked for.  Somehow, the defendants managed to narrowly escape the $100,000 judgment when they transferred nearly all of their assets from their bankrupt company into a newly formed company that conducted the same identified professional services.

So how does the New Jersey Uniform Fraudulent Transfer Act come into this decision?  The act basically creates a roadmap for individuals who wish to sue when they believe they are damaged by a transfer that is fraudulent.  There are signs called “badges of fraud” which are related to the transfer.  Some of these are, but are not limited to: the transfer was to an insider, the transfer was disclosed and/or concealed, before the transfer was made the debtor was threatened with legal action, the transfer involved almost all of the debtor’s assets, the debtor removed or concealed all or most of the assets, and so on.

To discuss your NJ Fraudulent Transfer matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at  Please ask us about our video conferencing consultations if you are unable to come to our office.

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