Credit guarantor's fraudulent-transfer claim dismissed

Background

Our client had been granted a mortgage over real estate by a debtor during the debtor's lifetime. A public credit guarantor, which had guaranteed loans to the company the debtor ran, repaid those loans after the debtor's death and sued to set aside the mortgage as a fraudulent transfer that harmed other creditors, seeking cancellation of the registration.

The issue

Whether the debtor was insolvent when the mortgage was granted, a point the party seeking to set aside the transaction must prove.

Our approach

Our client asked the court to dismiss the claim because the requirements for a fraudulent transfer were not met.

The court's reasoning

The court accepted that the guarantor's reimbursement claim could support such an action. However, it held that items the guarantor had counted as the debtor's liabilities, such as interest accrued after the debtor's death and reimbursement debts double-counted with other debts, could not be included in the liabilities at the time of the mortgage. As a result, insolvency at that time was not proven.

Outcome

The court dismissed the claim and ordered the guarantor to bear the litigation costs.

What this case means

In fraudulent-transfer actions, the claimant must specifically prove the debtor's financial position at the time of the transaction, and examining each liability item can change the outcome.

This is the outcome of an individual case and does not guarantee the same result in similar matters. Some facts have been generalized to protect the parties involved.