Category Archives: Merge

One Cannot Fraudulently Transfer Business Assets to a Related Business to Escape a Creditor

On July 19, 2010, the Federal District Court for the Southern District of New York decided a case regarding the issue of successor liability and fraudulent conveyance in which a debtor transferred its assets to a related business and left a creditor without any return on its investment or any repayment on its loan.  The Court in Silverman Partners LP v. The Verox Group et al., 2010 WL 2899438 (S.D.N.Y.) held that the plaintiff had alleged sufficient facts to show that it could be inferred that Verox Technologies was a continuation of Verox Group, and in addition that there may have been a fraudulent conveyance.  Id. at 5-6.  The Court cited plaintiff’s allegations as:
After Verox Group ceased doing business, Verox Technologies continued to operate under the direction of Verox Group’s Managing Members, with Verox Group’s EPA registrations, and all of Verox Group’s assets.  Verox Technologies also hired two of Verox Group’s independent sales representatives and conducted business with some of Verox Group’s former customers.  While Verox Technologies was registered in Nevada and Verox Group in Delaware, both have their principal places of business in New Hampshire and that they occupy the same physical location.  Verox Group is now a shell company with no cash or other assets and that there was, essentially, a de facto merger between Verox Group and Verox Technologies.  
Id.at 2.

 Verox Group transferred all of its assets to Verox Technologies sometime after June 21, 2007, that the Managing Members devised a scheme where they created Verox Technologies to avoid the debts and obligations which Verox Group owed to Plaintiff, and that the transfer was made by Verox Group and received by Verox Technologies with actual intent to hinder, delay and/or defraud Plaintiff as a shareholder and creditor.  
 Id. at 6.
The Court held that based upon the pleadings, plaintiff alleged sufficient facts such that it could be inferred that the buyer de facto merged with a seller. Since that would mean that the buyer was a mere continuation of the seller, and the transactions were undertaken to defraud creditors, the Court denied Verox Technologies’ motion to dismiss plaintiff’s claims.  Id. at 5-6.


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