Redemption Holdings, Inc. v. Government of the Virgin Islands
2016 V.I. Supreme LEXIS 27, 65 V.I. 243 (2016)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A conveyance made with actual intent to hinder, delay, or defraud creditors is fraudulent under the Uniform Fraudulent Conveyance Act. Such intent can be inferred from the presence of multiple circumstantial factors known as 'badges of fraud'.
Facts:
- Yusuf Jaber's real property was foreclosed upon and sold at a Marshal's Sale, leaving him with a right of redemption that expired on May 24, 2004.
- In April and May 2004, Egbert Hall made three unsecured personal loans to Jaber totaling $670,000.
- On May 21, 2004, three days before his redemption right expired, Jaber incorporated Redemption Holdings, Inc. (RHI).
- On May 22, 2004, Jaber was appointed president and treasurer of RHI and became its sole shareholder.
- On May 24, 2004, the final day to redeem, Jaber assigned his right of redemption to RHI, which then redeemed the property using funds provided by Jaber.
- Jaber subsequently failed to repay Hall, issuing checks that were dishonored for insufficient funds.
- On November 21, 2005, Jaber sold all of his stock in RHI to another creditor, Harvey R. Clapp, III, as security for a different debt.
- The original assignment of the redemption right from Jaber to RHI was not recorded until February 17, 2009, nearly five years after the transaction.
Procedural Posture:
- In November 2007, Egbert Hall filed a debt collection action against Yusuf Jaber in the Superior Court of the Virgin Islands.
- Jaber failed to appear after being personally served, resulting in an entry of default.
- On October 22, 2008, the Superior Court entered a default judgment in favor of Hall against Jaber for $642,522 plus costs.
- On April 24, 2009, Redemption Holdings, Inc. (RHI) filed an action in the Superior Court against Hall to establish clear title to the property.
- Hall filed a counterclaim against RHI, alleging that Jaber's transfer of the redemption right to RHI was a fraudulent conveyance under the Virgin Islands Uniform Fraudulent Conveyance Act.
- Following a bench trial, the Superior Court issued a judgment on February 27, 2015, in favor of Hall, finding the conveyance fraudulent and setting it aside.
- RHI, as appellant, filed a timely notice of appeal to the Supreme Court of the Virgin Islands, with Hall as the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a debtor's transfer of his right to redeem foreclosed real property to a newly-formed corporation, of which the debtor is the sole shareholder, president, and treasurer, constitute a fraudulent conveyance with actual intent to defraud a creditor?
Opinions:
Majority - Hodge, Chief Justice
Yes, the debtor's transfer of his right of redemption to his wholly-owned corporation constituted a fraudulent conveyance made with actual intent to defraud a creditor. The Virgin Islands Uniform Fraudulent Conveyance Act (VIUFCA) invalidates conveyances made with actual intent to hinder, delay, or defraud creditors. While direct proof of such intent is rare, it can be inferred from the presence of several 'badges of fraud.' In this case, numerous badges were present: 1) the transfer was to an insider (Jaber's wholly-owned corporation); 2) Jaber retained control of the property as RHI's sole shareholder and officer; 3) the transfer was concealed by delaying the recording of the assignment for nearly five years; 4) the transfer occurred shortly after Jaber incurred substantial debt to Hall; and 5) Jaber absconded from legal process by defaulting in Hall's debt collection suit and issuing bad checks. These circumstances, viewed together, are sufficient evidence of Jaber's actual intent to place the property beyond Hall's reach. The transfer prejudiced Hall because, had Jaber redeemed the property in his own name, Hall could have attached a judgment lien directly to it; instead, the asset was hidden within a corporate entity, making collection difficult if not impossible.
Analysis:
This decision formally adopts the 'badges of fraud' analysis for determining actual fraudulent intent under the now-repealed Virgin Islands Uniform Fraudulent Conveyance Act (VIUFCA). It clarifies that circumstantial evidence is sufficient to prove intent, bringing local law in line with other jurisdictions interpreting similar statutes. The case establishes that transforming an asset (a right of redemption) into another form (corporate stock) does not immunize the transaction if the purpose is to conceal the asset or hinder creditors. It reinforces the principle that courts will look past the form of a transaction to its substance to provide an equitable remedy against fraudulent schemes designed to shield assets.
