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Guest ColumnistOpinionProperty

Annulment of fraudulent transfer

Actions for the alienation of movable or immovable property made by a debtor aiming to defraud a creditor are considered as fraudulent acts and as such they may be annulled through a court order. A prerequisite is the existence of a court judgment for the debt as well as the existence of fraudulent acts against the judgment creditor, regardless of whether they were made before or after the filing of the action on the basis of which the judgment was issued.

Acts aiming to defraud the creditor are, inter alia, the donation, transfer, encumbrance or alienation to the benefit of a third person, of any asset of the judgement debtor, provided that they are made for the purpose of preventing or delaying the satisfaction of the judgment debt. The debtor’s intention is the determining factor to ascertain whether the transfer or disposal will be considered fraudulent. According to the law, unless evidence to the contrary is provided, the donation, transfer or encumbrance of a property were made to defraud the judgment creditor. The burden of proof in such cases is on the debtor in addition to the person acquiring the property, who must show he acted in good faith.

The relevant legislative provisions aim to secure the property of the judgment debtor, to remain available for the enforcement of the court judgment and the satisfaction of the judgment debt. The Supreme Court, in a judgment issued on 28.9.2018, states that the court can annul a fraudulent transfer and can order the cancellation of the registration and the re-registration of the property in the name of the debtor, with the simultaneous registration of the judgment debt as a charge over the property. The Supreme Court added that there are similar provisions stating that any donation, sale etc with an aim to prevent or delay the creditors will be considered as fraudulent, by presumption. Moreover, the Bankruptcy Law provides that any disposal of property which is not due to marriage or to the benefit of a purchaser in good faith and with a legitimate consideration shall be void if the disposal was made within two years of the bankruptcy being declared or if the person disposing them has been declared bankrupt at any time after the disposal and within a period of 10 years.

The only defence that may be put forward in these cases by the accused is to prove that the said act was made to a relative or a purchaser in good faith and without any intention to prevent or delay the creditor in the recovery of the judgment debt. A relative under the law may be the father, mother, spouse, child, grandchild, brother or sister and bona fide is considered (i) in relation to an act made for the benefit of a relative, any transfer or encumbrance made for a reasonable consideration, including the exchange with a property of equal value or a transfer or encumbrance made for the purpose of education, medical treatment or rehabilitation of that person, and (ii) in relation to an act made to the benefit of a purchaser, any transfer or encumbrance which is made for a reasonable consideration.

For the court to issue an annulment order, the judgment creditor must file an application in the context of the action under which the judgment was issued. The court, in such a case, may declare void any fraudulent transfer, encumbrance or alienation of the asset by any debtor, considering the interests of any bona fide third person. The latter, having acted in good faith without being aware of the intentions and actions of the debtor and having paid a reasonable consideration for the acquisition or encumbrance of the property, should not be concerned.

George Coucounis is a lawyer specialising in the Immovable Property Law, based in Larnaca, Tel: 24 818288, [email protected],

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