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What is fraudulent conveyance?

As a business owner, you worry about fraud. You know the impact that it can have on your financial position. You have to work with other companies to make your own business work, but you also understand that that puts you in a vulnerable position.

One type of fraud that you may experience is a fraudulent conveyance. What is this and why does it happen?

Avoiding debt

This is typically a financial issue and business owners may engage in this type of fraud to avoid debt. They do so by transferring assets out of their name so that the debt cannot be collected. It appears that they do not have the assets, but they’re actually just attempting to hide them.

For instance, perhaps your company manufactures a product and then sells it to an end seller, who in turn sells it to consumers. You make all of your deliveries on time, but that seller often misses their payments to you. This means you lose out on all of the profit from their sales, and they keep all of that money.

You go to the other company owner and tell them that you want to collect on the debt before you ship them any more items. They tell you that they simply do not have the money. Their accounts are empty and they cannot pay. Even if they use bankruptcy, they don’t have enough physical assets to pay you back.

What has happened, though, is that they transferred their money out of their own name. Maybe they “gave” it to a family friend. Then they “gave” their physical assets to another business owner in the area. They tried to make it look legit by selling those assets, but the amount they sold them for is just 5% of their true value.

Clearly, what they’re doing is giving away or “selling” all of the money and assets they have so that you have no way to collect. They’re hoping that you’ll simply terminate the relationship to cut your losses. After that, they’ll get their money and assets back from the others who were in on this scheme.

What are your rights?

You do not deserve to be treated like this. When your rights are violated, you need to know exactly what steps to take.