Piercing the Corporate Veil Setting Aside Fraudulent Conveyances

• Piercing the corporate veil: In appropriate cases, a court may permit a party to “pierce the corporate veil” and hold individuals personally liable for the debts of a corporation or other business entity. There are several factors which a Tennessee court will consider in determining whether the “corporate veil” of a business should be pierced. Those factors are: Whether the business was grossly undercapitalized; whether there was diversion or manipulation of corporate assets; whether the corporation or business was used as an instrumentality for an individual, another corporation or a business; whether the entity was owned solely by one person; and whether there was a failure to collect paid-in capital. As part of our analysis of your case, we will determine what grounds exist for piercing the corporate veil so that all parties who may be legally responsible for the debt owed to you are held accountable.
• Pinpointing and setting aside fraudulent transfers and fraudulent conveyances: Tennessee has adopted the Uniform Fraudulent Transfer Act which allows a creditor, under certain circumstances, to set aside and to void a transfer of an asset made by a debtor so that the debt to the creditor can be satisfied from the asset. Generally speaking, transfers that may be set aside by a creditor in order to collect money owed to the creditor include any transfers made by a debtor with the intent to hinder, delay or defraud a creditor. The following are some of the questions that Tennessee courts ask to determine whether or not a creditor transferred an asset to hinder, delay or defraud a creditor:
  • Was the transfer to an insider?
  • Did the debtor retain possession or control of the asset after the alleged transfer?
  • Was the transfer concealed and hidden?
  • Was the debtor sued or threatened with a lawsuit before the transfer?
  • Did the debtor transfer substantially all of the debtor’s assets?
  • Was the value of the asset transferred reasonably equivalent to the consideration received by the debtor for the asset?
  • Did the debtor become insolvent shortly after the asset was transferred?
  • Did the transfer occur shortly before or after a substantial debt was incurred?

If the answer to one or more of the above questions is in the affirmative, a creditor may well have adequate legal grounds to have the transfer set aside and used for the payment of the debt owed to the creditor. In cases where it appears that a fraudulent transfer may have been made, it is important for your commercial collection lawyer to conduct the necessary discovery and to take the necessary depositions to determine whether or not a transfer of an asset or assets by a debtor can be set aside as a fraudulent transfer. Part of our strategy in commercial collection cases is to determine whether a debtor might have made fraudulent transfers of assets, which, if set aside, could result in the payment of the debt owed to our client.