Voidable Transfer Under the New Debtor and Creditor Law

• Posted on: Nov 3 2025

By: Jeffrey M. Haber

In 2019, New York enacted the Uniform Voidable Transactions Act, which repealed and replaced certain provisions of the Debtor and Creditor Law (“DCL”) relating to fraudulent conveyances,[1] which became effective April 4, 2020.[2]Transfers made after April 4, 2020 are governed by the current version of the DCL.[3]

The DCL, as amended, permits creditors to void actual and constructive fraudulent transfers.[4]

A creditor may void a debtor’s constructive fraudulent transfers in three situations: first, if the transfers were made without receiving reasonably equivalent value and while the debtor either (i) was engaged in a transaction for which the debtor’s remaining assets were unreasonably small in relation to the transaction or (ii) intended to incur debts beyond its ability to pay;[5] second, if they were made without receiving reasonably equivalent value, and the debtor was insolvent at the time or became so as a result of the transfer,[6] or third, if they were made to an “insider” for an antecedent debt while the debtor was, and the insider had reason to believe the debtor was, insolvent.[7]

If the debtor is a corporation, “insider” for purposes of section 274(b) includes: “a person in control of the debtor,” “a relative of a … person in control of the debtor,” and “an affiliate, or an insider of an affiliate as if the affiliate were the debtor.”[8]

Voidability of constructive fraudulent transactions “is unrelated to the proof of the debtor’s intent, but turns on objective facts concerning the debtor’s distressed financial condition and the inadequate consideration received.”[9] Constructive fraudulent transfer claims are not subject to heightened pleading rules.[10]

A creditor may also void a debtor’s actual fraudulent transfers. DCL § 273(a), as amended, provides, in part, that a transfer made by a debtor is “voidable as to a creditor, whether the creditor’s claim arose before or after the transfer was made … if the debtor made the transfer … (1) with actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer … and the debtor … (i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (ii) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.”

In determining actual intent under DCL § 273(a)(1), courts may consider the common law “badges of fraud,” which have been codified to include, among other factors, whether “(1) the transfer or obligation was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer or obligation was disclosed or concealed; (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) the transfer was of substantially all the debtor’s assets; (6) the debtor absconded; (7) the debtor removed or concealed assets; (8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.”[11]

Although causes of action under Section 273 of the former DCL were not required to be pleaded with heightened particularity pursuant to CPLR 3016(b),[12] such particularity was required for “actual intent” causes of action arising out of Section 276 of the former DCL.[13] Since the “actual intent” provision of the former DCL was incorporated into the amended DCL (i.e., section 273 (a)(1)), causes of action arising under this subdivision must satisfy the heightened pleading requirements.[14] Thus, allegations of the transfer and badges of fraud made “upon information and belief” are generally insufficient to plead the claim with the requisite particularly of CPLR 3016(b).[15] 

However, where material facts are within the exclusive knowledge of the party charged with such fraud, the specificity requirement is not to be so strictly interpreted “to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings.”[16] Therefore, a pleading based “upon information and belief” can satisfy the CPLR 3016(b) heightened pleading requirement when it is accompanied by a statement of facts “sufficient to permit a reasonable inference of the alleged conduct.”[17]

In Neptune Issue Inc. Profit Sharing Plan v. Eliopoulos, 2025 N.Y. Slip Op. 06001 (3d Dept. Oct. 30, 2025 (here), the Appellate Division, Third Department, addressed the foregoing principles.

In April 2016, plaintiff commenced an action against defendant Mary Ellen Eliopoulos (“Eliopoulos”) and defendant Estates of Glenburnie LLC (“Glenburnie LLC”), a domestic limited liability company owned by Eliopoulos, seeking to foreclose on a note and mortgage secured by real property located in Essex County, New York.

Plaintiff commenced a second mortgage foreclosure action against Eliopoulos and Glenburnie LLC in May 2016, this time relating to real property located in Washington County, New York. While these actions were pending, Eliopoulos and Glenburnie LLC obtained two mortgages with nonparty Mako International, LLC (“Mako”), encumbering several parcels of real property located in the Town of Putnam, Washington County (“Putnam parcels”).

In late 2018, plaintiff obtained judgments of foreclosure and sale in both actions and, following the referee sales, moved in each action for a deficiency judgment against Eliopoulos.

In February 2019, Eliopoulos and Glenburnie LLC further encumbered the Putnam parcels with a third mortgage from Mako. Before either deficiency judgment could be rendered in plaintiff’s favor, in June 2020, Eliopoulos and Glenburnie LLC conveyed their interests in the Putnam parcels and two parcels commonly known as Lake George Way (collectively, the “subject properties”) to defendant Glenburnie Estates LLC (“GEL”) for $529,000. Eliopoulos’ son is the sole member of GEL.

Plaintiff then commenced the action against Eliopoulos, Glenburnie LLC and GEL (collectively, “defendants”) seeking to set aside the conveyance of the subject properties to GEL as a voidable transaction pursuant to DCL §§ 273, 274, and 275. GEL moved, pre-answer, to dismiss the complaint for failure to state a cause of action and based on the documentary evidence. GEL contended that the allegations against defendants based “upon information and belief” were insufficient to state a cause of action with the particularity required under the DCL. GEL further contended that a subsequent proposed sale of the subject properties demonstrated that Eliopoulos and Glenburnie LLC received reasonably equivalent value from GEL in exchange for the transfer. Plaintiff opposed the motion. The motion court entered an order without any written or oral findings, denying the motion to dismiss. GEL appealed.

The Court held that the complaint alleged sufficient facts to state causes of action alleging violations of DCL § 273(a)(1) and (a)(2).[18] “Although several key allegations in both causes of action were based ‘upon information and belief,’” noted the Court, it was “satisfied that the accompanying factual statements [were] sufficient to place defendants on notice of the allegations asserted against them.”[19] “Specifically,” said the Court, “each cause of action alleged that Eliopoulos and Glenburnie LLC conveyed the subject properties to her son’s entity, GEL, an insider, at a time when defendants knew they were likely to incur additional debts as a result of plaintiff’s pending actions seeking a deficiency judgment against Eliopoulos.”[20] “These factual statements,” concluded the Court, were “supported by the record, including that defendants [did] not dispute the son’s status as an insider.”[21] 

The Court also held that these statements satisfied “multiple factors considered to be badges of fraud,” and, therefore, were “sufficiently pleaded.”[22]

The Court noted that “[a]lthough … plaintiff’s allegations relating to Eliopoulos and Glenburnie LLC’s ability to repay additional debts likely to be incurred and further that Eliopoulos was insolvent after the transfer to GEL were not supported by factual statements, insolvency [was] presumed” under DCL § 271(b) “where a debtor is ‘generally not paying the debtor’s debts as they become due other than as a result of a bona fide dispute.’”[23] “At the time of the conveyance to GEL,” explained the Court, “plaintiff had already been awarded two judgments of foreclosure and sale against Eliopoulos for her failure to make payments under two separate mortgage notes.”[24] “Further,” said the Court, “considering that the record reveal[ed] Eliopoulos may have ignored an information subpoena relating to her finances as to at least one of the deficiency judgments,” it was “satisfied that such financial information [was] within the knowledge of the parties alleged to have engaged in a fraud and which could be explored during disclosure.”[25]

The Court rejected defendants’ contention plaintiff’s allegations were speculative because they were asserted “upon information and belief” and otherwise contrary to the documentary evidence:[26]

Eliopoulos and Glenburnie LLC encumbered the Putnam parcels with $475,000 in mortgages from Mako, and then sold the Putnam parcels plus two other parcels — including at least one parcel not subject to a Mako mortgage that had deeded water access to Lake George — to GEL for $529,000. As highlighted by plaintiff, this means two parcels on Lake George — one with deeded lake access — were conveyed for approximately $27,000 each. Then approximately three years later, all four subject properties were sold to a third party for $1,250,000. Although GEL contends that the actual consideration for the June 2020 transaction was above $529,000 and that the subject properties were “unmarketable and worthless” because other potential buyers “would not pay anything, let alone fair market value,” for real property that was subject to multiple lawsuits, this is information within the knowledge of defendants and a “plaintiff may allege upon information and belief that defendants transferred assets for inadequate or no consideration.”[27]

“When … recognizing that we are to afford the complaint a liberal construction, presume the alleged facts to be true, and afford plaintiff the benefit of every favorable inference when considering a motion to dismiss for failure to state a cause of action,” said the Court, “we are satisfied that the allegations contained in the complaint set forth a cognizable legal claim under the Debtor and Creditor Law.”[28]

Takeaway

The Legislature’s adoption of the Uniform Voidable Transactions Act modernized the State’s prior Debtor and Creditor Law, thereby enhancing creditor protections against fraudulent transfers. The revised law distinguishes between actual and constructive fraud, with the latter based on objective financial distress rather than intent. Actual fraud requires heightened pleading standards and is evaluated using codified “badges of fraud.” Neptune illustrates the law’s practical application: a property transfer to an insider during pending foreclosure actions was challenged as voidable. The Court found that even allegations made “upon information and belief” were sufficient when supported by factual context, such as insider status and undervalued consideration. Neptune also affirmed that insolvency can be presumed from missed payments and ignored subpoenas. Neptune reinforces the DCL’s focus on economic realities over formalities, thereby making it a powerful tool for creditors seeking redress for fraudulent transfers.

___________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] This Blog examined the new DCL in an article titled, N.Y. Supreme Court Rules on Alleged Fraudulent Conveyance and the Attempt to Evade Creditors.

[2] Uniform Voidable Transactions Act, L 2019, ch. 580, § 2 (eff. Apr. 4, 2020); L&M 353 Franklyn Ave. LLC v. Steinman, 202 A.D.3d 440, 440 (1st Dept. 2022); Van de Walle v. Van de Walle, 68 Misc. 3d 1224(A), 2020 N.Y. Slip Op. 051064(U) (Sup. Ct., Nassau County 2020), aff’d, 200 A.D.3d 1095 (2d Dept. 2021).

[3]  Van de Walle, 68 Misc. 3d 1224(A).

[4] DCL §§ 273(a)(1)-(2), 274(a)-(b), 276; see also Tian v. Top Food Trading Inc., No. 22-CV-0345 (EK) (VMS), 2024 WL 1051172, at *9 (E.D.N.Y. Feb. 26, 2024), adopted by 2024 WL 1908910 (May 1, 2024).

[5] DCL § 273(a)(2).

[6] Id. § 274(a).

[7] Id. § 274(b).

[8] Id. §§ 270(h)(2)(iii), (vi), (4).

[9] 245 E. 19 Realty LLC v. 245 E. 19th St. Parking LLC, 80 Misc. 3d 1206(A), at *6 (Sup. Ct., N.Y. County 2023) (citing James Gadsden & Alan Kolod, Supplementary Practice Commentaries, McKinney’s Debtor and Creditor Law § 273 (2020)), affirmed as modified, 223 A.D.3d 604 (1st Dept. 2024).

[10] In re Tops Holding II Corp., 646 B.R. 617, 649 (Bankr. S.D.N.Y. 2022).

[11] DCL § 273(b); see also Matter of Schiffman v. Affordable Shoes, 238 A.D.3d 770, 773 (2d Dept. 2025); 245 E. 19 Realty LLC, 223 A.D.3d at 606.

[12] See Louis Monteleone Fibres, Ltd. v. Hudson Baylor Brookhaven, LLC, 228 A.D.3d 641, 646 (2d Dept. 2024).

[13] See Old Republic Natl. Title Ins. Co. v. 1152 53 Mgt., LLC, 227 A.D. 3d  824, 828 (2d Dept. 2024); Avilon Automotive Group v. Leontiev, 194 A.D.3d 537, 539 (1st Dept. 2021).

[14] See generally Drip Capital, Inc. v. JY Imports of NY Inc., ___ F. Supp. 3d ___, ___, 348 F.R.D 536, 547 (E.D.N.Y. 2025).

[15] See Avilon Automotive, 194 A.D.3d at 539; Carlyle, LLC v. Quik Park 1633 Garage LLC, 160 A.D.3d 476, 477 (1st Dept. 2018).

[16] Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491-492 (2008); see Paolucci v. Mauro, 74 A.D.3d 1517, 1520-1521 (3d Dept. 2010); see generally CPLR 3211(d).

[17] Pludeman, 10 N.Y.3d at 492; see Louis Monteleone Fibres, 228 A.D.3d at 647; Phone Admin. Servs. Inc. v. Verizon N.Y., Inc., 211 A.D.3d 493, 494 (1st Dept. 2022); cf. Carlyle, 160 A.D.3d at 477.

[18] Slip Op. at *3.

[19] Id.

[20] Id.

[21] Id. (citing DCL § 270(h)(1)(i); (2)(vi)).

[22] Id. (citing 245 E. 19 Realty, 223 A.D.3d at 606; JDI Display Am., Inc. v. Jaco Elecs, Inc., 188 A.D.3d 844, 846 (2d Dept. 2020); DCL § 273(b)).

[23] Id. at *4.

[24] Id.

[25] Id. (citation omitted).

[26] Id.

[27] Id. (quoting 477 Realty, L.L.C. v. Wing Soho, LLC, 234 A.D.3d 469, 471 (1st Dept. 2025)).

[28] Id. (citing Pludeman, 10 N.Y.3d at 493; Paolucci,74 A.D.3d at 1521).

Tagged with: Business Litigation, Commercial Litigation, Debtor and Creditor Law, Fraud, Fraudulent Transfer