1. Chicago Daily Law Bulletin - The City's No. 1 Source for the Law Profession
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Serving the city's law profession since 1854
July 29, 2015
The Fraudulent Transfer Act: Pleading to show actual fraud
By Paul B. Porvaznik
Paul B. Porvaznik is an attorney at Davis, McGrath LLC and practices primarily in the areas of commercial
litigation, landlord-tenant law, mechanic’s liens and post-judgment enforcement.
The Illinois Fraudulent Transfer Act is a powerful creditor enforcement tool aimed at capturing assets
transferred by a judgment debtor to elude a money judgment.
In United Central Bank v. Sindhu, 2014 WL 3748555, the plaintiff bank obtained a $4.3 million judgment
against Saad Sindhu. After initiating various citations to discover assets, United Central Bank learned that
several months after the judgment, the defendant transferred three properties to his sister — including one
residential property valued at more than $3 million. He also received and turned over several rent checks on
one of the transferred commercial properties.
The bank filed suit against the defendant and his sister under the FTA, 740 ILCS 160/1, et seq., seeking the
turnover of the $3 million property and the rent checks. The defendants moved to dismiss all counts. The U.S.
District Court denied the bulk of the motion.
The reasons
FTA sections 5(a)(1), (2) and 6 govern claims based on actual fraud, constructive fraud and for pre-transfer
claims, respectively.
The FTA’s actual fraud provision — section 5(a)(1) — requires a plaintiff to plead that a debtor transferred
property with actual intent to hinder or defraud a creditor, whether the claim arose before or after the transfer
was made.
Actual fraud factors include the following:
•The transfer or obligation was to an insider.
•The transfer or obligation was disclosed or concealed.
•Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with
suit.
•The transfer was of substantially all the debtor’s assets.
•The debtor removed or concealed assets.

2. Chicago Daily Law Bulletin - The City's No. 1 Source for the Law Profession
http://www.chicagolawbulletin.com/...rintpath=/Articles/2015/07/29/Paul-Porvaznik-forum-7-29-15&classname=tera.gn3article[7/29/2015 4:56:04 PM]
•The value of the consideration received by the debtor was reasonably equivalent to the value of the asset
transferred or the amount of the obligation incurred.
To plead FTA constructive fraud — section 5(a)(2) — the plaintiff must allege that the transfer was made,
before or after a creditor’s claim matured, and the debtor never received reasonably equivalent value in
exchange for the transfer.
The constructive fraud plaintiff must also allege that the debtor engaged in or was about to engage in a
transaction that left the debtor with zero or unreasonably small remaining assets, or should have believed that
he would incur debts beyond his ability to pay as they became due.
FTA section 6(a) applies only to creditor claims that arose before a debtor’s transfer of assets.
An FTA section 6(a) plaintiff must establish three points:
•The debtor made a transfer without receiving anything reasonably equivalent in exchange for the transfer.
•The debtor was insolvent at that time or became insolvent as the result of the transfer.
•The creditor’s claim arose before the transfer.
The court found that the bank sufficiently alleged valid FTA claims under all three sections.
The thrust of the complaint was that several months after the money judgment, the defendant secretly
transferred multiple million-dollar properties and rent checks to a family member (an insider) and received
little or nothing in return.
The defendant’s sister (the transferee) argued that she retired more than $1.5 million in the debtor’s
mortgage debt in return for the conveyance of the $3 million residence property.
However, since the property was worth more than twice the amount of the retired mortgage debt, the court
found that the defendant didn’t receive a reasonably equivalent value in exchange.
Taken together, the court found these allegations satisfied the pleading standards for an FTA actual fraud
and constructive fraud claim for transfers made before or after a creditor’s claim arose.
Sindhu shows in sharp relief the fruits of aggressive post-judgment collection efforts. Had the plaintiff not
so ardently pursued its claims, the defendant could have transferred substantial assets and likely escaped the
judgment.
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