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 (2nd 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.
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