Section 6.27 Constructively Fraudulent Transfers

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

B. (§6.27) Constructively Fraudulent Transfers

There are four types of constructive fraud. 11 U.S.C. § 548(a)(1)(B)(ii)(I)–(IV). In circumstances of constructive fraud, a transfer made or an obligation incurred in good faith and without intent to hinder, delay, or defraud creditors is, nevertheless, voidable by the trustee as a fraudulent transfer under the Bankruptcy Code. Courts in the Eighth Circuit tend to require the following elements to prove constructive fraud:

A transfer of property Transfer made or incurred within two years of the date of the filing of the petition The debtor’s insolvency on the date of the transfer A transfer in exchange for less than the reasonably equivalent value

In re Steffens, 148 B.R. 914, 916 (Bankr. W.D. Mo. 1993) (Koger, C.J.).

Under § 548(a)(1)(B)(i), a transfer that is made for less than a reasonably equivalent value possesses an element common to all four forms of constructive fraud. “[V]alue,” as defined in § 548(d)(2)(A), “means property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor.” Whether a transfer is of reasonably equivalent value is a question of fact, which will be determined on a case-by-case basis. In re Ozark Rest. Equip. Co., 850 F.2d 342, 344 (8^th Cir. 1988). Reasonably equivalent value measures whether “the debtor received a fair exchange in the market place for the goods transferred,” and “should not be wholly dependent upon the viability of the debtor,” rather it depends on the market conditions between a willing seller and a willing buyer.” Id. at 345. The Eighth Circuit has articulated the following test for determining whether the exchange was for reasonably equivalent value: “Considering all the factors bearing on the sale, did the debtor receive fair market value for the property.” Id.

Whether the transfer was for reasonably equivalent value...