Liquidating Distribution Was a Fraudulent Conveyance

Liquidating Distribution Was a Fraudulent Conveyance

      In the decision and render by a New York intermediate appellate court, it was held that the liquidating distribution of an LLC, thereby rendering it insolvent, when it remained subject to certain indemnification and similar claims, constituted a fraudulent conveyance. Medical Arts-Huntington Realty, LLC v. Meltzer Rosenberg Development, LLC, 149 A.D.3d 824, 52 N.Y.S.3d 382 (2^nd App. Div. 2017).

       The defendants in this action had been the members in 21 Wall Associates, LLC. That company sold its sole asset, certain real property. The purchase agreement provided that certain claims against 214 Wall or the propertywould survive the closing and remain its responsibility. In support thereof, the members of 214 Wall agreed to guarantee the LLC’s obligations. When suit was brought by the purchaser against 214 Wall, judgments exceeding $300,000 were rendered against it. Seeking to collect, it was asserted that the distribution by 214 Wall of its assets to the LLC’s members was a fraudulent conveyance. Finding that those members had provided no consideration for the distributions, violation of the fraudulent conveyance law was found.