When companies go through a split, it can cause many complicated problems. One of these issues is when a professional partner or employee takes company property without permission to avoid paying debts or gain more power over the business.
These actions, called fraudulent transfers, can significantly impact your separation from a business partner, also known as a business divorce.
What are fraudulent transfers?
Fraudulent transfers happen when someone moves assets dishonestly. They may do this to prevent creditors from collecting debts or to change who owns the property. This action can happen in different ways. A person may sell assets for less than they are worth, give them to someone else without paying them fairly or move them to avoid paying obligations. The idea is to shift holdings in a way that harms creditors or business partners.
What are the different types of fraudulent transfers?
There are two primary kinds of fraudulent transfers. Actual fraud involves intentional dishonesty. The transferor aims to defraud creditors or manipulate ownership rights. Some examples include changing financial records, withholding important information or hiding money.
A debtor commits constructive fraud by transferring property without receiving a fair value in exchange. This kind of fraud happens when the person was insolvent at the time or became insolvent due to the transfer. Examples include transferring assets for less than market value and moving assets from a partnership to a newly created corporation. These actions can be deceitful and may warrant investigation.
What are the consequences of fraudulent transfers?
If someone you do business with makes fraudulent transfers, it can have serious consequences for both of you. These can include legal disputes, financial losses, damage to your professional reputation and criminal charges. A court may require a reversal, even if the process affects you as a non-debtor. These transfers can also disrupt various aspects of your company’s operations. They can affect cash flow, asset management and professional relationships.
What are your legal rights?
As a business owner, if a partner engages in these transactions, it can be a breach of fiduciary duty. You have the legal right to file a lawsuit to reverse the transfer and return the assets to the business. A court may require your partner to pay you damages. Compensation can include the asset’s value, the amount of debt, interest, penalties and legal fees.
Understanding and addressing fraudulent transfers is important. When you know your rights, you can uphold your company’s integrity and ensure a fair outcome.
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