Protecting Your Rights as a Creditor in Georgia After Your Debtor Has Engaged in a Fraudulent Transfer

As a creditor, you understand that your business involves certain risks that “come with the territory.” Sometimes, a debtor’s business may fail to attract customers or may be destroyed by a catastrophic event. Other times, though, the debtor is not an innocent actor, such as cases where the debtor engages in fraudulent transfers to try to dodge having to pay. When that happens, you may have the opportunity to recover many forms of compensation, including punitive damages, but to do so, you have to know the right way to proceed in court. For that, rely on representation from a knowledgeable Atlanta creditor’s rights attorney.

An Ohio lender found itself in those shoes recently. The lender had lent substantial sums to the owner of a construction business. As the business faltered and the owner fell behind on his loan payments, he transferred numerous assets to a number of Florida LLCs and also to himself and his wife as “tenants by the entirety.” This had the effect of making those assets unreachable by the business owner’s creditors.

The lender was not without any recourse, however. The lender sued in federal court, asserting that the owner had violated Alabama’s Uniform Fraudulent Transfer Act by transferring certain real estate to an LLC. A fraudulent transfer takes place when a borrower transfers interest in an asset or assets “with the actual intent to hinder, delay or defraud” a creditor.

In addition to seeking other relief, the lender also argued that the borrower acted in an intentionally wrongful way and that the lender was entitled to punitive damages. The trial court sided with the lender and, in addition to other damages, awarded $300,000 in punitive damages.

The borrower filed an appeal and argued that punitive damages were not justified in this case and, even if they were, $300,000 was excessive. That appeal failed. The 11th Circuit Court of Appeals, whose rulings directly impact federal cases in Alabama, Georgia and Florida, concluded that the law required the lender to prove that the borrower concealed the transfer, and that this creditor had sufficiently done so.

The borrower recorded the transfer deed with the Office of the Judge of Probate, but took no other action to disclose the transfer to the lender. In fact, the borrower specifically failed to disclose the existence of the LLC to the lender several months later and “misidentified” the real estate on a Personal Financial Statement made to the lender. That amounted to sufficient proof of concealment and the lender’s entitlement to punitive damages.

Georgia law requires ‘bad faith, actual fraud or conspiracy’

When you are harmed as a result of a fraudulent transfer here in Georgia, you can, much like this lender did, obtain punitive damages. Back in 2017, a lender litigated its fraudulent transfer case all the way to the Georgia Court of Appeals. That court determined that Georgia’s Uniform Fraudulent Transfers Act allows awards of punitive damages when the lender shows proof of the borrower’s “bad faith, actual fraud or conspiracy.” A case, like this recent 11th Circuit one, where you have proof the borrower “affirmatively omitted evidence of the transfer” in a written statement made to you, could quite possibly meet Georgia law’s standards of bad faith and open the door to a punitive damages award.

Whatever kind of damages you seek to pursue in your case against your debtor, you need the skill and knowledge of an experienced advocate. Count on the Atlanta creditor’s rights attorneys at Poole Huffman, LLC to provide you with exactly that kind of personalized, diligent and effective representation to protect your interests. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation.