On February 27, 2024, the First Department issued a decision in SSC NY Corp. v. Computershare Inc., 2024 NY Slip Op. 00991, holding that a DCL 276 fraudulent conveyance claim failed for insufficient allegations of fraud, explaining:
In this fraudulent conveyance action plaintiff seeks to collect a judgment against the now-defunct company Inveshare. As relevant to this appeal, plaintiff alleges that pursuant to Debtor and Creditor Law § 276, nonparty Inveshare’s stock redemption payments to defendant Computershare were made with actual intent to defraud creditors. It also alleges that Inveshare’s payments to Gilo and Ristova-Gilo’ joint bank account was fraudulent as well as subsequent transfers from nonparty Ventures II to Gilo defendants and Ventures LLC.
The burden of proof to establish actual fraud under Debtor and Creditor Law § 276 is upon the creditor who seeks to have the conveyance set aside, and the standard for such proof is clear and convincing evidence. Section 276 of the Debtor and Creditor Law, addressing an actual fraudulent conveyance, applies to any conveyance made with actual intent to hinder, delay, or defraud either present or future creditors. Debtor and Creditor Law § 276 addresses actual fraud, as opposed to constructive fraud, and unlike Debtor and Creditor Law § 275, does not require proof of unfair consideration or insolvency. Recognizing the difficulty of proving actual intent to hinder, delay, or defraud creditors, courts have allowed the pleader to rely on badges of fraud to support the case, i.e., circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent. Such badges include a close relationship between the parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; the transferor’s knowledge of the creditor’s claim and the inability to pay it; and retention of control of the property by the transferor after the conveyance.
Here, plaintiff, formerly known as Sunrise Securities Corp., failed to allege—much less plead with the requisite particularity— how Inveshare (where Gilo was the chief executive officer and director) could have made the Computershare transfer (five payments to Compushare totaling $33.1 million) with the requisite intent to frustrate it’s collection efforts when it had not received a judgment at the time of the Computershare transfer, and had not pursued its claim following Inveshare’ s denial of payment for over three years. The fact that Inveshare ultimately wound down its operations years after the Computershare transfer amounts to an allegation of insolvency by hindsight that was insufficient to support plaintiff’s claim as a matter of law.
Equally unavailing are plaintiff’s claims against Gilo and the payments made by Inveshare while under his control, as the allegations provide no detail, and, if based solely on information and belief, were also insufficient to state a claim for actual fraudulent conveyance. Even if any of these payments were not made in the ordinary course of business, this does not necessarily make the transfer questionable, nor does it show fraudulent intent. Further, the fact of an insider payment shows only an intent to pay that insider and does not by itself establish an intent to hinder, delay, or defraud some other creditor.
(Internal quotations and citations omitted).