Aleksandra Cygan | In Principle

A fraudulent transfer claim against a third party protects participants in commerce and helps combat reprehensible actions by debtors aimed at avoiding payment of their debts. Under a fraudulent transfer claim against a third party, a creditor affected by the debtor’s fraudulent behaviour may enforce a claim against assets that the debtor transferred to a third party.

Through a fraudulent transfer claim against a third party, a creditor impacted by the debtor’s dishonest behaviour can enforce its rights against property transferred by the debtor to a third party. This allows the creditor to challenge the effectiveness of a transaction carried out with a third party to the creditor’s detriment.

It is worthwhile for creditors to take part in litigation even if the outcome could go against them. This way, they can help prevent the court from issuing rulings sought by colluding debtors and their allies.

Dishonest debtors are increasingly daring to use court proceedings to fictitiously dispose of funds to pay their debts. They believe that if they obtain a final judgment that orders them, for example, to pay an amount to a third party, the creditor will not be able to contest the payment. But is the creditor completely defenceless? With this article, we are kicking off a series on what to pay attention to and how to react when a debtor initiates court proceedings that may render the debtor insolvent.

Acts by a debtor benefitting a third party—a family member entitled to maintenance—can violate the interests of other creditors and frustrate their ability to satisfy their claims from the debtor’s assets. This entitles creditors to seek legal protection under Art. 527–534 of the Polish Civil Code. A fraudulent transfer claim against a third party can be used to set aside a deed establishing a maintenance obligation.

To challenge a transaction by a debtor with a third party injurious to a creditor (fraudulent transfer action) or a contract by the debtor with a third party (action under Civil Code Art. 59), it is essential to file the properly drafted statement of claim with the court with proper venue geographically and for the subject matter. How to determine which court is proper to hear the case?

The deepening crisis of debtor honesty means that today, more than ever, creditors face the risk that debtors will not only fail to pay their debts voluntarily, but will hinder enforcement by transferring assets to third parties. In such situations, a fraudulent transfer claim against the third party (sometimes called a “Pauline action”), known and applied in legal systems of many countries around the world, comes to the creditor’s rescue.

In a recent resolution, the Supreme Court of Poland addressed the legal situation of a creditor bringing a fraudulent transfer claim against a third party, compared to other creditors of the third party.

Often, both debtors and creditors believe that if a debtor has initiated a whole chain of transactions to evade paying debts, the case cannot be “unwound” and the creditor is defenceless. But in reality, in such situations dishonest debtors (and their allies) cannot rest easy. Both the legal provisions and the court practice give the creditor a chance to successfully challenge even a whole chain of fraudulent transactions.

In its judgment of 10 February 2021 (case no. I CSKP 33/21), the Supreme Court of Poland considered a cassation appeal by a claimant seeking to prove that it was wronged as a creditor in a fraudulent transfer claim against a third party (governed by Art. 527 and following of the Civil Code). The Supreme Court raised important issues in this debatable decision from the point of view of the safety of participants in commerce, including creditors. Among other things, the court pointed out that the assessment of whether a creditor was harmed within the meaning of Art. 527 §2 is affected by whether the consideration obtained by the debtor was used to satisfy other creditors.