In sum, FUFTA recognizes two basic types of insolvency: Cash Flow Insolvency and Balance Sheet Insolvency. Lastly, a transfer to an insider may be deemed constructive fraud under § 726.106(2), which states:Ī transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.įla. Likewise, constructive fraud under § 726.106(1) governing fraudulent transfers as to present creditors focuses on the economic effect of the transfer-again requiring proof of both reasonably equivalent value and insolvency-and providing the following:Ī transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.įla. Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due (“Cash Flow Insolvency”).Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction (“Unreasonably Small Capital”) or.“nd the debtor” did either of the following:.The debtor made a transfer without receiving reasonably equivalent value.Under § 726.105(1)(b), governing fraudulent transfers as to present and future creditors, the creditor must prove two things: Specifically, there are three separate provisions of FUFTA that govern constructive fraud-§§ 726.105(1)(b) 726.106(1) and 726.106(2). Just as fraudulent transfers can be categorized as either actual and constructive, the statute further identifies specific economic effects that may constitute a claim for constructive fraudulent transfers. While the transferor’s insolvency is an indicia of fraudulent intent, it is certainly not dispositive of actual fraud. In fact, insolvency is among the many factors-“badges of fraud”-that a court may consider in determine whether a debtor possessed the requisite intent to hinder, delay or defraud. Insolvency is not wholly irrelevant in proving actual fraudulent transfers. In other words, “Cash Flow” insolvency gives rise to a presumption of “insolvency” under FUFTA. Additionally, there is a presumption of insolvency when a debtor “is generally not paying his or her debts as they become due.” Fla. Grippe Ceramiche Richetti, S.P.A., 862 So. “Section 726.103(1) provides a definition the courts label the “balance sheet test.” Balsamo v. Under FUFTA, a debtor is considered “insolvent” when the “sum of the debtor’s debts is greater than all of the debtor’s assets at fair valuation.” Fla. The Significance of Insolvency in the Various “Types” of Fraudulent Transfers
Whether prosecuting or defending fraudulent transfer claims, practitioners should be aware of the types of insolvency contemplated by FUFTA, and the various ways or proving it. If the economic effects of the transfer were to leave the debtor insolvent, then the creditor may obtain relief.
In other words, constructive fraud does not hinge on the debtor’s intent, but rather the economic effects of the transfer.ĭue to the practical difficulties in proving “actual fraud”, many aggrieved creditors often seek to prove constructive fraudulent transfers, bringing the issue of the debtor’s insolvency to the forefront of fraudulent transfer litigation. However, the drafters of the statute understood the difficulty in proving intent, finding that a transfer could be deemed constructively fraudulent, upon a showing that the debtor was insolvent at the time of the transfer. 726.105(1)(a)-insolvency of the debtor is largely irrelevant. When a debtor makes a transfer with “actual intent to hinder, delay or defraud” a creditor-that is, “actual fraud” under Fla.
There are two primary types of fraudulent transfers contemplated under Florida’s Uniform Fraudulent Transfer Act (“FUFTA”)-actual fraudulent transfers and constructive fraudulent transfers. Real Estate Development, Sales & Leasing.Community Advocacy & Social Responsibility.Search Website Submit SearchSearch Close Search
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