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United States v. Gleneagles Inv. Co. - 565 F. Supp. 556 (M.D. Pa. 1983)

Rule:

The law under the Pennsylvania Uniform Fraudulent Conveyances Act, 39 Pa. Cons. Stat. § 355, as it has been developed in other jurisdictions is that a finding of insolvency is ipso facto a finding that the debtor was left with unreasonably small capital after the conveyance. 

Facts:

The government sought to reduce to judgment delinquent federal income taxes, interest, and other penalties against defendant corporation and to collect tax claims on land presently or previously owned by the corporation. It also sought to set aside, as fraudulent conveyances, mortgages allegedly encumbering the corporation's land.

Issue:

Were the conveyances fraudulent?

Answer:

Yes.

Conclusion:

The court held that the corporation's transfer of stock, in return for a loan, was fraudulent under Pennsylvania Uniform Fraudulent Conveyances Act, 39 Pa. Cons. Stat. § 351 et seq. The transfers were fraudulent because the lender failed to meet the standard of good faith knowing that the loan was made without adequate consideration. The loan proceeds, merely passed through the borrowing corporation to shareholders, did not constitute consideration received by the borrowing corporation. The loan proceeds did not benefit ultimate loan guarantors nor did the proceeds strengthen the financial position of the corporation. Therefore, mortgages to secure the loan obligations were not secured by fair consideration. The shareholders, under the prudent man standard, breached its duty not to make injurious transfer of corporation control.

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