A debtor who sells real estate at a price well below the rate practiced in the property market, aggravating their state of insolvency, commits fraud against creditors. Therefore, the prejudiced creditors may file the so-called “actio pauliana” to undo the legal transaction, preserving their interests in a future enforcement.
With this understanding, the 17th Civil Chamber of the Court of Justice of Rio Grande do Sul upheld a judgment that annulled the sale of three properties in the Judicial District of Bom Jesus, since the court of origin saw in the legal transaction fraud against creditors, given that the asset could be used for payment of debts. With the panel’s decision, unanimously, the properties returned to the ownership of the debtor company – one of the defendants in the action.
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“The actio pauliana is the procedural means appropriate for the annulment of legal acts performed in fraud against creditors through proof that the debt predates the act of transfer, of the eventus damni [harm caused to the creditor by the debtor’s insolvency upon carrying out the legal transaction], and of the so-called consilium fraudis [collusion to defraud third parties],” the rapporteur of the Appeal, Appellate Judge Giovanni Conti, recorded in the ruling.
Fraudulent disposal
One of the creditors, the plaintiff in the action, stated in the initial petition that the lumber company and its owner executed between themselves a public deed of purchase and sale of the company’s only property, which comprises three parcels of land, at a derisory price, reducing it to insolvency. He requested a declaration of ineffectiveness of the sale and a declaration of fraud against creditors. To show that there was fraud, he asserted his status as a creditor, listing judicial actions between himself and the lumber company.
The owner of the lumber company, who would come to pass away during the course of the proceedings, being replaced by the estate, filed a defense. He stated that the legal requirements for granting the plaintiff’s request were not met, since the case records bring only “allegations of fraud” against creditors, without any proof. The lumber company, summoned by public notice, generically contested the request set forth in the initial petition.
Read the full article on the Conjur website here.
Source: Conjur
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