Asset transfers within 2 years of  bankruptcy can inspire lawsuits

On Behalf of | Jun 8, 2020 | Business and commercial bankruptcies |

Filing for business bankruptcy can be a lot more complicated than filing for personal bankruptcy. For one thing, you will have more obligations, such as pension plans and employee wages to ensure you cover or discharge. Your creditors may also be businesses who have contracts with you, and they may try to enforce that contract for their own financial protection.

There could also be shareholders and investors who may expect some kind of compensation if your company files for bankruptcy. If they think you’ve tried to avoid repayment by giving away or transferring assets, they could potentially take legal action. Fraudulent transfer lawsuits can result if someone else believes that your company transferred assets to keep them out of the bankruptcy proceedings. 

The trustee and others may look back through two years of transactions

Bankruptcy often involves liquidation of certain assets in order to repay creditors or restructure the business itself and ensure future solvency. When a business files bankruptcy, part of the process will likely involve renegotiating or partially repaying creditors prior to discharge. 

Business owners who know that a business bankruptcy may be necessary in the near future could try to protect certain assets or show favor to certain investors and shareholders by making transfers of assets prior to the bankruptcy filing. This not only impacts who gets paid but also reduces the assets available to repay creditors.  

The trustee in theory has the ability to nullify transfers made within 24 months of your bankruptcy filing, and other companies, including creditors and investors, can potentially bring civil action against the company if they believe that fraudulent transfers occurred prior to the bankruptcy filing.

Bankruptcy law is complicated, so don’t try to go it alone. An experienced attorney can guide you through these complicated processes.