Note: Because of prior difficulty in making payments, ENE Group LLC (Distributor), owned by Marvin Jamal (Owner), applied for an LC issued by Star Funding, Inc., to induce Topever Corp. (Supplier) to release goods. In the meantime, Owner hid his assets by setting up The Underground Group (Shell Company) as a shell corporation into which he transferred Distributor's assets in order to "shield themselves from liability" Owner structured the shares to benefit Owner's family members. The LC was "invalid and unenforceable" (although it is unclear whether the LC was forged) and Distributor never repaid the amount due.

Supplier sued Distributor and Shell Company for fraudulent conveyance and other claims. Defendants moved to dismiss all claims. The U.S. District Court for the Southern District of New York, Baer, J., denied the motion to dismiss the fraudulent conveyance claim and motions to dismiss other claims were granted in part, and denied in part.

The Judge stated that a fraudulent conveyance may exist if the conveyance was made with actual intent. The Judge concluded that Supplier had sufficiently pled the element of intent by asserting the presence of "badges of fraud" such as "(1) inadequacy of consideration received in the allegedly fraudulent conveyance; (2) the close relationship between parties to the transfer; (3) information that the transferor was rendered insolvent by the conveyance; (4) suspicious timing of transactions or existence of a pattern after the debt had been incurred or a legal action against the debtor had been threatened; or (5) the use of fictitious parties" Supplier alleged three of the five badges. In particular, the Judge noted that insolvency was further suggested by the fact that the LC was unenforceable.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.