Act (former New York Personal Property Law, McKinney's Consol.Laws, c. 41, § 44) and that the transfer was not fraudulent in fact (as required by New York Debtor and Creditor Law, McKinney's Consol.Laws, c. 12, § 276) but, at worst, simply preferential of one class of creditors and unassailable because consummated more than four months before bankruptcy. It is concluded that the transfer was a fraudulent conveyance under Section 276 of the New York Debtor and Creditor Law and must be set aside.
The facts, separately found, disclose that in February 1956 the bankrupt was deeply insolvent. He was then in the business of making and selling ornamental railings; his business had shown a loss in 1955 of about $13,000 after deducting the bankrupt's "drawings" of $6,300, but hisinsolvency had arisen mainly from a dissociated and calamitous promotional venture. The ornamental railing business seemed worth saving and so a plan was developed among the bankrupt, his wife, and a committee of the creditors of the railing business to perpetuate that business for their benefit to the exclusion of the remaining creditors.
The plan was boldly simple. The bankrupt in February 1956 transferred all the assets of his railing business to a newly formed corporation in exchange for its promise to pay the $12,400 of the bankrupt's business debts at the rate of ten percent a month, starting December 1, 1956, and to pay, in addition, the bankrupt's withholding tax liabilities. The total indebtedness of the bankrupt at the time was about $125,000.
The transferee corporation had no assets