Fraudulent Transfers, Veil Piercing, and Successor Liability in Massachusetts: Key Doctrines for Debtors and Creditors to Understand.
Creditors and plaintiffs often encounter the frustrating reality that a judgment debtor or defendant may try to shield assets or operate behind a corporate entity to evade liability. In Massachusetts, three related legal doctrines—fraudulent transfer, corporate veil piercing, and successor liability—offer important tools to counter such tactics. Each serves a distinct but overlapping role in promoting fairness and preventing abuse of the corporate form.
Fraudulent Transfers
Under the Massachusetts Uniform Fraudulent Transfer Act (MUFTA), G.L. c. 109A, a transfer made by a debtor is fraudulent as to a creditor if it is made “with actual intent to hinder, delay, or defraud” any creditor, or without receiving “a reasonably equivalent value” in return, when the debtor was insolvent or became insolvent as a result. G.L. c. 109A, §§ 5-6.
The SJC’s decision in In re Bryan, 644 F.3d 61 (1st Cir. 2011) (applying Massachusetts law), offers a thorough analysis of how courts determine fraudulent intent through “badges of fraud.” These include a transfer to an insider, retention of control of the property, concealment of the transfer, and transfer of substantially all assets.
MUFTA provides powerful remedies: the creditor may avoid the transfer, attach or garnish the transferred asset, or obtain an injunction or receivership to recover assets.
Corporate Veil Piercing
While corporations and LLCs are generally separate legal entities, Massachusetts courts may disregard that separateness—commonly known as “piercing the corporate veil”—when the entity is being used to perpetrate fraud or is merely an alter ego of the individual.
The SJC laid out the foundational test for veil piercing in My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614 (1968). The court emphasized that veil piercing is justified when there is “confused intermingling” of activity between corporate and personal affairs, a “serious ambiguity” about corporate structure, or use of the corporation to defeat public convenience or perpetrate fraud.
More recently, in Scott v. NG U.S. 1, Inc., 450 Mass. 760 (2008), the court reiterated that Massachusetts courts apply a multifactor test, looking at undercapitalization, failure to observe corporate formalities, and siphoning of funds, among other factors.
Successor Liability
Generally, a corporation acquiring another’s assets does not assume the seller’s liabilities. However, Massachusetts recognizes several exceptions, including when the successor is a “mere continuation” of the predecessor or where the transaction amounts to a fraudulent attempt to avoid liability.
In Milliken & Co. v. Duro Textiles, LLC, 451 Mass. 547 (2008), the SJC held that successor liability may apply when the purchasing company is a mere continuation of the seller, including shared management, assets, and business operations. The court emphasized the importance of equitable factors in determining whether imposing liability is fair.
Conclusion
Massachusetts courts are equipped with a robust set of equitable tools to ensure that individuals and entities cannot escape liability through shell games or formalistic corporate structures. Understanding and invoking doctrines like fraudulent transfer, veil piercing, and successor liability can make the difference between an uncollectable judgment and a successful recovery. If you are the subject of a lawsuit alleging any kind of successor liability of fraudulent transfer, or you have questions about how to protect yourself or your business from potential legal exposure, call attorney Marques Lipton at 508-202-0681 today for a free consultation.