Motorworld, Inc. v. Benkendorf

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At issue in this case was whether a corporation's release of a debt constituted a constructively fraudulent transfer under the Uniform Fraudulent Transfer Act (UFTA). The debt that was released had previously been owed to the corporation by a landscaping business that was a creditor of two other corporations owned by the same shareholder. The other corporations debts to the landscaping business were extinguished in exchange for the release. The trial court concluded that the transfer was constructively fraudulent under N.J.S.A.25:2-27(a) because the corporation relinquished its sole asset without receiving reasonably equivalent value in return. An Appellate Division panel reversed that determination. The panel held that the transfer benefited the debtor corporation's sole shareholder because it extinguished the debts of two other corporations that she owned. The Appellate Division determined that the transfer was therefore made for reasonably equivalent value and that it was not constructively fraudulent under N.J.S.A.25:2-27(a). The New Jersey Supreme Court held that the Appellate Division panel improperly ignored the distinction between the corporation that was the debtor for purposes of N.J.S.A.25:2-27(a) and its shareholder, as well as the distinction between the debtor corporation and the other corporate entities that the shareholder owned. The Court concluded the evidence fully supported the trial court's determination the corporation did not receive reasonably equivalent value in exchange for the disputed transfer. Accordingly, the Appellate Division's judgment was reversed and the case remanded to the panel for its consideration of issues that it did not reach. View "Motorworld, Inc. v. Benkendorf" on Justia Law

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