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In Oltchin SA v. Zebulon Industries, et al., a case with salacious - and all-too-common facts - that was reported a few years back in the New York Law Journal, a Westchester County court declined to dismiss the plaintiff's claim that the defendants were diverting their assets in a desperate attempt to avoid a judgment that had been rendered against them in a breach of contract case.

More specifically, in this case the defendant manufacturers failed to pay for the materials that were furnished to them by the plaintiff, a Romanian corporation. At the binding arbitration that was held before an international tribunal of the ICC, plaintiff was awarded damages of over $1.5 million.

Thereafter, the plaintiff corporation had the award confirmed by a New York State court, and the award became a collectible judgment.

Or so the plaintiff thought.

When the plaintiff went to enforce the judgment, it learned that the defendants had divested their corporation of all its assets.

How the Plaintiff Tried to "Undo" the Defendants' Attempts to Divest the Company of its Assets

In other words (or, rather, in legalese), the plaintiff asked the Court to set aside these transactions as fraudulent conveyances (or, in lay terms, to "undo" those transactions) and to pierce the defendants' corporate veil, holding the now-defunct corporation's officers individually liable for the defendant's debt.

Consequently, they brought this case seeking to set aside those transactions as fraudulent and to pierce the defendants' corporate veil(s).

In denying the defendants' motion to dismiss the complaint (which contained a whopping 27 causes of action), the Court noted that plaintiff met the pleading requirements for these allegations, and further stated that

"Similarly, the Complaint adequately pleads Causes of Action for civil conspiracy to commit fraud ... and piercing the corporate veil (Gateway I Group Physicians, Inc., 62 AAD3d 141, 145-46 [2d dept 2009]; Shisgal v Brown, 21 AD3d 845, 848 [1st Dept 2005]). Specifically, Plaintiff has alleged that all of Velco's assets were transferred to Zebulon without fair consideration for the benefit of Defendants Michel Goldschneider and Matthew Gelchion, who owned and/or controlled both companies, and that after the transfer Zebulon took over Velco's office space, furniture, equipment and personnel."

The Takeaway

Although the Court's opinion was rendered in a very matter-of-fact manner, you can't help but sense that the following sentiment underlies the Court's opinion:

There is absolutely no way I'm going to let these defendants get away with this charade on some procedural technicality.

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer
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