Commercial Division Blog
Corporate Officers Who Repaid Loans to Themselves Instead of Paying Creditors Liable for Fraudulent Conveyance
On April 16, 2015, the First Department issued a decision in Holme v. Global Minerals & Metals Corp., 2015 NY Slip Op. 03249, affirming a grant of summary judgment on a claim for fraudulent conveyance.
In Holme, the plaintiff sought to collect a judgment it had obtained against a non-party ("Global NY") by bringing an action against the defendants, who were officers of Global NY, on the ground that they "had stripped Global NY of its assets and that the company had been defunct for several years." The trial court granted the plaintiff summary judgment on its claim for fraudulent conveyance. The First Department affirmed, explaining:
It is undisputed that the individual defendants began lending money to Global NY in 1998 and 1999, and that Global NY paid these loans back to the individual defendants after it had become a defendant in the prior action for money damages. Global NY's preferential repayment of these debts to the individual defendants, who were officers of Global NY, in derogation of the rights of plaintiff, a general creditor, lack good faith as a matter of law, and therefore constitute conveyances without fair consideration.
(Internal quotations and citations omitted) (emphasis added). This decision does not suggest that the defendants had not loaned money to Global NY or were not entitled to repayment. The problem here is simply the decision to repay themselves in preference to the plaintiff.