Warning to Creditors: The Clock Is Ticking


Warning to Creditors: The Clock Is Ticking

Warning to Creditors: The Clock Is Ticking


In a case of first impression, the North Carolina Court of Appeals recently held that a creditor’s fraudulent conveyance claim was time-barred, even though the creditor did not know about the fraudulent nature of the transfer. The Court of Appeals elected to adopt the minority position held by other courts across the country which have reviewed when the statute of limitations begins to run on a claim under the Uniform Voidable Transactions Act, formerly known as the Uniform Fraudulent Transfer Act (“UFTA”).

The case of KB Aircraft Acquisition, LLC v. Jack M. Berry and 585 Goforth Road, LLC involved a workout of a distressed aircraft loan. Mr. Berry, a guarantor of the loan, owned a vacation mountain home in North Carolina. The value of the house was substantial and it was not encumbered by any debt. In 2008, the aircraft loan went into default. The creditor worked with the borrower from 2008-2010 to restructure the loan, modifying the loan on four separate occasions in an attempt to give the borrower breathing room to service the loan. Unbeknownst to the lender, Mr. Berry transferred his mountain house to a limited liability company, 585 Goforth Road, LLC, (“LLC”) at the beginning of the workout negotiations. The LLC was owned by Mr. Berry and his wife. Mr. Berry would later testify that this mountain house was the sole remaining asset in his name and that he intentionally transferred the mountain house out of his name so that he would have no assets in his name. Each of the modification agreements provided, among other things, there had been no material change in the financial condition of the borrower or the guarantor Mr. Berry.


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