Fraudulent Transfers to Insiders

A transfer made by a debtor to an insider is fraudulent if:

1. the transfer was made to an insider for a debt that already exists,
2. the debtor was insolvent  at that time, and
3. the insider had reason to believe that the debtor was insolvent.

What is an Insider?

Insiders are narrowly defined by the law. For an individual, that is defined as follows:

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 in which the debtor is a general partner.

4. A corporation of which the debtor is a director, officer, or person in control.

Insiders for a corporation are defined as follows:

1. A director or officer of the debtor.

2. A person in control of the debtor.

3. A partnership in which the debtor is a general partner.

4. A general partner in a partnership in which the debtor is a general partner.

5. A relative of a general partner, director, officer, or person in control of the debtor.

Insiders for a partnership are defined as follows:

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 in which the debtor is a general partner.

5. A person in control of the debtor.

Some people/entities are insiders, regardless:

1. An affiliate, or an insider of an affiliate as if the affiliate were the debtor.

2. A managing agent of the debtor.

The list above is not exhaustive. If the “insider” status should apply but isn’t specifically listed above, the courts will look to these factors to determine insider status, a sort of “relationship test”: (1) the closeness of the relationship between the transferee and the debtor, and (2) whether the transaction was conducted at arm’s length.