In Seta Artunian Nassif, et. al. v. Jelmac, L.L.C., No. A-4100-10T2 (N.J. Super. Ct. App. Div. July 11, 2012), the Appellate Division of the Superior Court of New Jersey was presented with the following legal issue: what constitutes a fraudulent transfer under the New Jersey Fraudulent Transfer Act (Act)? N.J.S.A. 25:2-26.

That case involved a business that was late in paying its rent. The landlord alleged that the entity that was responsible for the rent had transferred its assets to insiders who were individuals that had a relationship to the entity. The plaintiff alleged that the purpose had been to frustrate the landlords ability to collect a judgment for the rent. The Court was asked to determine whether the admitted transfer of those assets constituted a fraudulent transfer under the Act.

The Act sets forth the following factors to determine whether a fraudulent transfer occurred:

a. The transfer or obligation was to an insider;

b. The debtor retained possession or control of the property transferred after the transfer;

c. The transfer or obligation was disclosed or concealed;

d. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

e. The transfer was of substantially all the debtor’s assets;

f. The debtor absconded;

g. The debtor removed or concealed assets;

h. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

i. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

j. The transfer occurred shortly before or shortly after a substantial debt was incurred; and

k. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

The Court determined that no fraudulent transfer had occurred. In reaching that holding, it focused on the fact that no evidence had been adduced as to when the transfers took place. Therefore, there was no way
of knowing whether the transfers were done knowing that they would render  the tenant insolvent. As the court stated, [i]n  other words, no evidence demonstrates whether the alleged cash transfer was made before or after plaintiff’s claim arose. Id. at 20.

This case is instructive for those individuals who control entities that may owe money to others.  The Act should be taken into account when moving funds from such an entity to be sure the transfer does not run afoul of it.


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