The Relkin Law Firm

11/13/2021

04/21/2021

The Collection of Fraudulent Conveyances
Using the Law of Fraudulent Conveyances to Collect Judgments–Now You See the Money, Now You Don’t–It Takes Creativity to Catch a Thief
The Relkin Law Firm

DAVID H. RELKIN, ESQ.
Corporate and Litigation Counsel: Anticipate legal Issues–Creative Solutions at The Relkin Law Firm 12 articles Fraudulent Conveyances


Recently I gave two lectures to Businesspeople and Attorneys as part of a Seminar on "Collection of Judgments: Start to Finish."

The materials I prepared involved both Pre-Suit Collection Strategies which are appropriate for anyone in the Collection Field, Credit Managers, in-house counsel, small businesses, and experienced attorneys; and the Use of Fraudulent Conveyances as a powerful tool against debtors, companies, and even to obtain attachments of assets.

Pursuant to the Uniform Fraudulent Conveyance Act, enacted in New York as the Debtor and Creditor Law (the “DCL”), Creditors having a claim against a Debtor may avoid transfers in a variety of circumstances: and they can be recovered from both the Transferor and the Transferee of the assets–without any proof of Intentional Fraud. Four sections of the DCL deem as “constructive fraudulent transfers” where the transfers lack “good faith” — such as paying the principals of the Debtor — if an entity –or by making transfers to family members or other persons having an interest in the Debtor or were affiliates of the Entity. An easy case is where the transferors buy houses for their children with money they took from the family Corporation. The power of the DCL is that it allows the Creditor to go after the transferor or any transferee, even into the hands of third parties. This is obviously only one example of a Debtor’s conduct, the list is obviously endless because people will always find new ways to dissipate the assets they grabbed before the Creditor got his Judgment.

One thing a Creditor can count on, however, is that when a Company “goes out of business” there are always some assets left, which are generally paid to the principals of the Company. I have handled many different types of fraudulent transfers but very few have gotten away with it.

In this short space, I can tell you about one very interesting case I handled. I represented a Creditor which had sold millions of yards of fabric to the Corporate Debtor. During a long Arbitration–over a number of months–and while my motion to Confirm the Arbitration Award was being decided, post-judgment discovery showed that the Debtor no longer had any assets.
The Shareholders and their wives claimed that, after having lent the Debtor 4 Million Dollars, they began paying themselves back their loans during the Arbitration. The Shareholders thought they had protected themselves by claiming that they had lent money to the Company and used Security Agreements and UCC Financing Statements to back up their claim. Thus, even though they had claimed it was a genuine loan or whether it was (more likely) a capital infusion didn’t matter. (Of course, a Capital infusion would have been the most likely case since the Company’s balance sheets would have had to show their 4 Million Dollar loan as a Current Liability, which would have eroded any possibility of borrowing money from a lender.)

The Debtors produced these “repayments” of their loans, which they began issuing a few months after we served the Demand for Arbitration on the Debtor. The checks which the Company paid each of the principals (the putative lenders), were each duly marked as “repayments of loans” and added up to just under 4 Million Dollars.

My argument--which had never been made before--was simple and Judge Haight of the Southern District agreed.

The principals were all "insiders" insofar as the two Brothers who owned the Company and they and their wives had repaid themselves these “loans” during the years of Arbitration.

I argued that the individuals could not establish that the repayments were made in “good faith” since one of the key elements of “Fair Consideration” requires that payments must be made in good faith to insulate the transfers. (“Fair Consideration” is defined in the DCL as any transfer of assets made in good faith….”)
The problem was that the DCL provision which I sought to apply rendered all transfers constructively fraudulent which were made after an "action" had been commenced against the Debtor. Until my case, “an action” had always meant “an action at law commenced in a Court” and had never be used for an Arbitration. In fact, I couldn’t find even one case where it had been argued.

I asked Judge Haight of the Southern District of New York to recognize that, in today’s world, an arbitration is an “action” for the purposes of the DCL. It had the same purpose: namely to put the principals on notice that a Judgment was likely to be entered after the Arbitration, and that, unless an Arbitration was “an action,” given that Arbitration has become a standard method of resolving disputes, debtors could easily avoid the DCL Statute by resolving the dispute in Arbitration.

Judge Haight agreed. It is now well settled that (1) Fair consideration does not exist even if Security Agreements set forth the existence of a debt, so long as monies are paid to insiders, and (2) that an aggrieved creditor can assert that all monies transferred by a debtor after the commencement of an arbitration are fraudulent as a matter of law and that each of the individuals became personally liable to the extent of the “loans” repaid to them.

This was a case of first impression–no Court had ever held an arbitration to be an “action” under the New York Debtor and Creditor Law–but it has now been universally followed by all Courts which have dealt with these facts.

The takeaway is that a smart Creditor has many ways to collect money from Debtors even if the Creditor cannot show “intent”– which is generally a question of fact, causing further litigation. A smart litigator can find fraudulent transfers (even if he can not prove that they were “intentionally” fraudulent) which can be collected from the debtor’s principals or family members, so long as he knows what he is doing.

12/04/2020

WHY IS LITIGATION LIKE CHESS?: Because winning depends on thinking three steps ahead.

Most Attorneys have become like scientists: they know more and more about less and less. They also do not recognize that Strategic creativity and anticipation are keys to success.

Since you are looking for legal advice–the most important thing to look for is an Attorney who anticipates. I have worked on both sides of this profession for over 30 years: Both Drafting and Litigating.

Litigation has been called “war by other means” for a good reason: Your Agreements are like your weapons or army which you count on to protect your company. So, when you have out of date weapons or tanks, you will be run off the battlefield.

The most important thing to remember is that the best Attorney is one who can think three steps ahead and can anticipate your adversary's next move: stop right now and, before you even have any problems, and reevaluate your business agreements with an Attorney who can see and provide you with defenses to unwanted litigation and who can strengthen your ability to attack defendants. But never go into a transaction or litigation without an Attorney who can see three steps ahead–like in Chess.

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BY THE RELKIN LAW FIRM IN ARBITRATION TRIALS, COLLECTION OF JUDGMENTS, COLLECTIONS, COMMERCIAL ARBITRATION, CONFIRMATION OF ARBITRATION AWARDS, HOW TO PICK AN ATTORNEY, LITIGATION AND ANALYSIS, STRATEGIC ANALYSIS JOINED WITH SYNERGY, THE NEW LITIGATION, UNCATEGORIZED ON SEPTEMBER 15, 2018.

12/04/2020

THE REASONS TO ARBITRATE ARE STILL VALID:
Why was Arbitration a great method of resolving disputes?:
Because of Limited Discovery, Speed to Trial and the Moderate Costs of Time and Expense
It was Quick (from the filing of a Demand for Arbitration to Trial could be 60-120 days)–not two to three years.
It was Cost Effective–there was a time when there was only discovery of a party’s proposed exhibits to be used in a Hearing.
Now there are depositions and document discovery;
Endless discovery disputes to be resolved by three Arbitrators pulling down collectively $1500/hr.;
Discovery is easily the most expensive and time-consuming part of any dispute resolution/litigation.
The Arbitrators Panels were businessmen, who had experience in the Area of dispute.
ARBITRATION CAN BE FIXED BECAUSE ARBITRATION IS CONTRACTUAL
Arbitration clearly has benefits that litigation cannot provide:

The parties can choose their arbitrator, rather than have a judge or jury chosen by the luck of the draw, with expertise in the subject matter of the dispute.
Discovery can be limited: Interrogatories can be limited or eliminated, depositions prohibited or limited as to number and duration, and even documentary demands limited to one exchange.
The result will return Arbitration to its original purposes: a meaningful alternative to Litigation.
Your Arbitration Provisions may be re-written to manage discovery, time limits, the type of Arbitrator and to expedite Hearings.
Of course, there are many techniques for tightening the ADR process, and nothing can replace an Experienced Arbitration professional.
But with the right type of Agreement, Arbitration can again become a swift, inexpensive and tailored Alternative to the High Cost of Litigation.
Make sure that you consult a Commercial Arbitration Professional to rewrite the provisions of your Arbitration Agreement–not a corporate attorney–because they do not know what to avoid and what to keep.

David H. Relkin, Esq. –212-244-8722– [email protected]

I have practiced as a Commercial Arbitration and Litigation attorney for over 32 years. You need someone with experience. See my bio on www.linkedin.com/in/davidrelkinlaw

View David H. Relkin, Esq.’s profile on LinkedIn, the world’s largest professional community. David H. has 8 jobs listed on their profile. See the complete profile on LinkedIn and discover David H.’s connections and jobs at similar companies.

11/12/2020

ARBITRATION: ITS BENEFITS AND RISKS

Arbitration can be a powerful method of resolving disputes but an arbitration provision can also be deadly. The provision may restrict statutes of limitation or force you into an out-of-state jurisdiction, deny attorneys' fees or limit certain causes of action. Pay attention and possibly request an attorney to review the provision before signing.
Do not fall into the belief that fraud or "fraud in inducement" will abrogate the provision. Courts enforce the arbitration provision and require you to arbitrate the fraud. In this way, an arbitration prevents you from litigating, will prevent you from enforcing a judgment and will cost you legal fees you will never collect. Most attorneys do not know this.
Read my posts on LinkedIn. Linkedin.com/in/davidrelkinlaw

View David H. Relkin, Esq.’s profile on LinkedIn, the world’s largest professional community. David H. has 8 jobs listed on their profile. See the complete profile on LinkedIn and discover David H.’s connections and jobs at similar companies.

07/22/2019

See my other site on LinkedIn at www.linkedin.com/in/davidrelkinlaw

05/16/2019

Now that almost every contract provides for Arbitration, why has Arbitration become the new Litigation?

Once upon a time… There was a world in which attorneys advised their clients to Arbitrate disputes instead of litigating them: their main justifications were Speed, Low Cost, and Finality. As…

05/16/2019

One of my most important principles is to “Focus on results.” It means to always keep in mind the target you’re trying to attain. This is something that could be immediately applied to any business, in any country, and in any language. It cuts away the unnecessary and allows one to streamline your time to achieve success.

05/16/2019

CREDIT AND COLLECTION PROFESSIONALS

• What Qualities Make A Good Credit Executive?

David H. Relkin, Esq.
[email protected]
212-244-8722
New York, New York

I have represented at least twenty Factors and Banks during my thirty-three-year career. I have had close relationships with Management, Presidents and CEO’s but I also became close to the account or credit managers at the Factors and Banks. In factoring, when a customer turns out to be a bad credit risk, the client charges back the receivable to the Factor. Or, when a customer doesn’t raise a claim but isn’t paying the seller (the Factor’s client), I would get a call from one of them.

In my opinion, the credit professional is perhaps the most important part of a company. But to do the job right she needs to be a Wolf in Sheep’s Clothing. The Salesman will just keep selling—that’s what he does. The Executives like high sales irrespective of the creditworthiness of the customer because you cannot see it on a balance sheet. And, you are left with stomach pains because you are the only one who knows that when this situation blows up, you will be getting hit with most of the shrapnel. It’s a tough but lonely job, but Credit Exec’s ensure the Company’s future.

A Credit professional often must insinuate him or herself between the Salesman and the shippers. Otherwise, that customer who owes $100,000 and you have no contract with him gets more goods, uses them to pay himself and everyone else and cut and run. Now, obviously, that is the dark version, but if you don’t stop more goods going out the door when that $100,000 receivable is past due, that’s your neck. When a customer fails to pay, it will ALWAYS be the Credit Exec's fault. That’s why you must exercise a type of veto power over the fulfillment division (or shippers), because, if you don’t stop those goods from going out the door, that receivable will only get larger and ride off in the sunset of uncollectibility.

So, let me share with you why I believe the best policy for Credit Execs is to assume their customers are thieves but must be spoken to like old friends. As the ancient Chinese General said: “keep your friends close and your enemies closer.” You must be the master of the carrot and the stick. You need a signed contract; but you can downplay it: “it’s just a formality, everyone signs.” Or, when the customer’s receivables start showing up late, call the President of the Buyer, introduce yourself and make him your friend, of course we want to ship your order, but we need a payment against the old invoice first.

In order to turn receivables into capital and profit, you must prepare yourself before the first transaction with a customer—and this is the most important quality a Credit Exec can have—assume he will not pay and get the documentation signed at the beginning of the relationship with the customer. You need to get a credit “application” (which if an attorney drafts it can appear completely innocuous but protect you against the buyer. Make sure the attorney who writes it is experienced in Credit, Sales, Bankruptcy and Collections (not a Microsoft template) so it isn't just a piece of paper you can hang on your wall.

You need an attorney who has drafted and litigated these agreements so he knows what should go into them. I have drafted and litigated them for thirty-three years. Putting even one small phrase into an agreement can save a client a thousands of dollars if the matter goes to litigation.

The Salesman may be invited to the buyer’s house in the Hamptons, but unless you play your role, his or her margaritas will convince the Salesman to keep selling and the Company will fail. Credit Execs keep the Company afloat—but they are perhaps the least respected persons in a Company.

Sometimes you may need to discuss the slow payer with his Salesman—put some of the responsibility onto him or her. Or, maybe the Salesman will explain that the customer has a large order and will be slightly late on his initial invoices, but his customer is A1. Even still, check it out. Ask the customer to pay down some of the debt.

Do not forget that you can use the Salesman, but do not be afraid to put pressure on the customer to pay, i.e., make sure the barn door isn't left open. In other words, if there are outstanding receivables, make sure the Salesman brings you a check and wait for it to clear before the next shipment of goods are loaded. Don’t be satisfied if the Salesman says that “of course the customer’s check” will clear. You must treat every customer as if he won't pay, to prepare the necessary documents for war.

Credit and Collections in this and every other market is War by other Means.

My article on this issue: “What kind of Attorney do you need?” is found at www.LinkedIn.com/davidrelkinlaw Because I have drafted and litigated these agreements, I know what is needed and what is not. If you send me a contract of yours and I cannot substantially improve it by small additions or subtractions, there is no charge.

David H. Relkin, Esq.
212-244-8722

05/16/2019

As I have written extensively on Linkedin.com/davidrelkinlaw
everyone faces the question of what kind of attorney they need. Who you pick is obviously based on years of experience, knowledge, and acumen.

The lawyer that I believe that you should retain is largely unique and difficult to find.

He is an attorney who is familiar with drafting contracts, sales agreement, non-disclosure agreements, Trademark assignments or licensing, all of which would be considered to be corporate law.

But he is also a litigator, an Arbitrator, or a collection attorney--and I focus my practice on both sides of the table. You would be shocked how a badly drafted agreement can cause you to lose a litigation; or how easy it is to get horrible advise from an attorney who does not know the key parts of an agreement or isn't an expert in Litigation, Arbitration, and Collections.

I started practicing law thirty-three years ago. I have handled dozens of Bench Trials (no jury), Jury Trials, and over 100 Arbitrations. But I was also General Counsel for a Multi-Million Dollar importing Company and I redrafted all of their agreements, as I do for many of my clients who think a simple three-paragraph agreement will allow them to win. It's not how long the agreement is; sometimes that will spook a customer. It can be short but pithy.

My experience crosses the corporate-litigation barrier. I have litigated lousy agreements and have drafted great agreements since agreements are supposed to protect you from litigation or at least guarantee a win. So, whether you need someone to review your contract or litigate it, try to find an attorney who is an expert in both.