5.7 FRAUDULENT AND VOLUNTARY CONVEYANCES
5.701 Introduction. Section 55-80 [55.1-400] of the Virginia Code, referred to as the Fraudulent Conveyance Act, and section 55-81 [55.1-401], referred to as the Voluntary Conveyance Act, codify common-law provisions that were originally codified in England's Statute of 13 Elizabeth. These remedies are frequently used by trustees in bankruptcy, but they are also available to any creditor and can be asserted in state courts.
5.702 Fraudulent Conveyances.
A. In General. Section 55-80 [55.1-400] provides an extremely broad remedy against a person who has made a transfer with intent "to delay, hinder or defraud creditors, purchasers or other persons." The statute provides:
Every gift, conveyance, assignment or transfer of, or charge upon, any estate, real or personal, every suit commenced or decree, judgment or execution suffered or obtained and every bond or other writing given with intent to delay, hinder or defraud creditors, purchasers or other persons of or from what they are or may be lawfully entitled to shall, as to such creditors, purchasers or other persons, their representatives or assigns, be void. This section shall not affect the title of a purchaser for valuable consideration, unless it appear that he had notice of the fraudulent intent of his immediate grantor or of the fraud rendering void the title of such grantor.
The remedy under section 55-80 [55.1-400] is available not only to creditors of the transferor at the time the transfer is made, but also to someone who subsequently becomes a creditor of the transferor. Although a trustee in bankruptcy must exercise this remedy before the later of (i) two years after the entry of the order for relief; or (ii) one year after the appointment or election of the first trustee if that appointment or election occurs before the expiration of the period specified in clause (i), 37 there is no limitation under Virginia law for this action. 38 The action is brought to seek recovery of the transferred property, and the statute does not entitle the creditor to a personal judgment against the transferee. 39
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B. Burden of Proof. In La Bella Dona Skin Care, Inc. v. Belle Femme Enterprises, LLC, 40 the Supreme Court of Virginia held that a person seeking to set aside a transfer under section 55-80 [55.1-400] must prove fraudulent intent by "clear, cogent and convincing" evidence. However, a number of Virginia cases have held that if the plaintiff produces evidence of badges of fraud, this establishes a prima facie case and the burden of proof shifts to the transferee. 41 Badges of fraud include: (i) retention of an interest in the transferred property by the transferor; (ii) transfer between family members for allegedly antecedent debt; (iii) pursuit of the transferor or threat of litigation by the transferor's creditors at the time of the transfer; (iv) lack of or gross inadequacy of consideration for the conveyance; (v) retention or possession of the property by the transferor; and (vi) fraudulent incurrence of the indebtedness after the conveyance. Virginia courts recognize that fraudulent intent may be proved by circumstantial evidence. In In re Porter, 42 Judge Blackwell Shelley thoroughly analyzed Virginia law on badges of fraud and their effect on proceedings brought under this statute.
C. Preferences. Under Virginia law, absent clear and convincing proof of intent to defraud other creditors, a debtor may prefer one or more creditors over other creditors, regardless of whether the debtor is solvent or insolvent. If the debtor is insolvent, however, a creditor who is in complete control of the debtor may not prefer himself or herself. That type of preference constitutes a fraudulent conveyance. 43 On the other hand, in Bank of...
