Fraudulent Conveyance

Elements

Actual Fraudulent Transfer

(1) A debtor made a transfer or incurred an obligation;

(2) With actual intent to hinder, delay, or defraud any creditor of the debtor

• It does not matter whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred.

Nev. Rev. Stat. § 112.180(1)(a); Herup v. First Boston Financial, LLC, 123 Nev. 27, 162 P.3d 870, 873 (2007).

Constructive Fraudulent Transfer
(1) A debtor made a transfer or incurred an obligation;
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation; and
(3) The debtor either
(a) 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; or
(b) Intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.
*It does not matter whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred.

Nev. Rev. Stat. § 112.180(1)(b); Herup v. First Boston Financial, LLC, 123 Nev. 27, 162 P.3d 870, 873 (2007).

Transfer by Insolvent Debtor
(1) A debtor made a transfer or incurred an obligation;
(2) The creditor’s claim arose before the transfer was made or the obligation was incurred;
(3) The debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation; and
(4) The debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
OR
(1) The debtor makes a transfer;
(2) The creditor’s claim arose before the transfer was made ;
(3) The transfer was made to an insider for an antecedent debt;
(4) The debtor was insolvent at that time; and
(5) The insider had reasonable cause to believe that the debtor was insolvent.

Nev. Rev. Stat. § 112.190; Herup v. First Boston Financial, LLC, 123 Nev. 27, 162 P.3d 870, 873 (2007).

Example Cases

Proof

Intent
In determining actual intent under paragraph (a) of subsection 1, consideration may be given, among other factors, to whether:
(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.
Nev. Rev. Stat. § 112.180(2); Herup v. First Boston Financial, LLC, 123 Nev. 27, 162 P.3d 870, 873-74 (2007).

Insolvency
1. A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation.
2. A debtor who is generally not paying his debts as they become due is presumed to be insolvent.
3. A partnership is insolvent under subsection 1 if the sum of the partnership’s debts is greater than the aggregate, at a fair valuation, of all of the partnership’s assets and the sum of the excess of the value of each general partner’s nonpartnership assets over the partner’s nonpartnership debts.
4. Assets under this section do not include property that has been transferred, concealed or removed with intent to hinder, delay or defraud creditors or that has been transferred in a manner making the transfer voidable under this chapter.
5. Debts under this section do not include an obligation to the extent it is secured by a valid lien on property of the debtor not included as an asset.

Nev. Rev. Stat. § 112.160; Sportsco Enterprises v. Morris, 112 Nev. 625, 632, 917 P.2d 934, 938 n.4 (1996).

A creditor bears the burden of proof to show insolvency existing at the time or resulting from the conveyance. Sportsco Enterprises v. Morris, 112 Nev. 625, 632, 917 P.2d 934, 938 (1996); Matusik v. Large, 85 Nev. 202, 205, 452 P.2d 457, 458 (1969).

"However, where the creditor establishes the existence of certain indicia or badges of fraud, the burden shifts to the defendant to come forward with rebuttal evidence that a transfer was not made to defraud the creditor." Sportsco Enterprises v. Morris, 112 Nev. 625, 632, 917 P.2d 934, 938 (1996).

"Generally recognized indicia of fraud include lack of consideration for the conveyance, the transfer of the debtor's entire estate, relationship between transferor and transferee, the pendency or threat of litigation, secrecy or hurried transaction, insolvency or indebtedness of the transferor, departure from the usual method of business, the retention by the debtor of possession of the property, and the reservation of benefit to the transferor." Sportsco Enterprises v. Morris, 112 Nev. 625, 632, 917 P.2d 934, 938 (1996).

Reasonably Equivalent Value

A creditor bears the burden of proof to show the absence or inadequacy of the exchange of a reasonably equivalent value. Sportsco Enterprises v. Morris, 112 Nev. 625, 632, 917 P.2d 934, 938 (1996); Matusik v. Large, 85 Nev. 202, 205, 452 P.2d 457, 458 (1969).

On the issue of fair consideration for the transfers, the test to be applied is whether the disparity between the true value of the property transferred and the price paid is so great as to shock the conscience and strike the understanding at once with the conviction that such transfer never could have been made in good faith. Matusik v. Large, 85 Nev. 202, 208, 452 P.2d 457, 460 (1969).

Property
"Property" means anything that may be the subject of ownership. Nev. Rev. Stat. § 112.150(10); Sportsco Enterprises v. Morris, 112 Nev. 625, 631, 917 P.2d 934, 937 (1996).

Insider
"Insider" includes:
(a) If the debtor is a natural person:
(1) A relative of the debtor or of a general partner of the debtor;
(2) A partnership in which the debtor is a general partner;
(3) A general partner in a partnership described in subparagraph (2); and
(4) A corporation of which the debtor is a director, officer or person in control;
(b) If the debtor is a corporation:
(1) A director of the debtor;
(2) An officer of the debtor;
(3) A person in control of the debtor;
(4) A partnership in which the debtor is a general partner;
(5) A general partner in a partnership described in subparagraph (4); and
(6) A relative of a general partner, director, officer or person in control of the debtor;
(c) If the debtor is a partnership:
(1) A general partner in the debtor;
(2) A relative of a general partner in, a general partner of, or a person in control of the debtor;
(3) Another partnership in which the debtor is a general partner;
(4) A general partner in a partnership described in subparagraph (3); and
(5) A person in control of the debtor;
(d) An affiliate, or an insider of an affiliate as if the affiliate were the debtor; and
(e) A managing agent of the debtor.

Nev. Rev. Stat. § 112.150(7).

Damages

Defenses

Good Faith
A transfer or obligation is not voidable under paragraph (a) of subsection 1 of NRS 112.180 against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee. Nev. Rev. Stat. § 112.220(1).

"[I]n order to establish a good faith defense to a fraudulent transfer claim, the transferee must show objectively that he or she did not know or had no reason to know of the transferor's fraudulent purpose to delay, hinder, or defraud the transferor's creditors." Herup v. First Boston Financial, LLC, 123 Nev. 27, 162 P.3d 870, 876 (2007).

"[A] transferee must prove that he received the transfer in objective good faith. That is, good faith must be determined on a case-by-case basis by examining whether the facts would have caused a reasonable transferee to inquire into whether the transferor's purpose in effectuating the transfer was to delay, hinder, or defraud the transferor's creditors. Constructive notice may be inferred from knowledge of facts that impose a duty to inquire. While a transferee's lack of actual knowledge of the transferor's fraudulent purpose is relevant to determining whether the transferee received the transferred property in objective good faith, that fact alone is not dispositive." Herup v. First Boston Financial, LLC, 123 Nev. 27, 162 P.3d 870, 875-76 (2007).

Misc