A Florida asset purchase closed on my desk two years ago at what looked, on the price card, like a strong deal for the buyer. The target was a regional services business that had been struggling for three quarters and was carrying about $8 million of trade payables and a $3 million senior loan. The purchase price was $9.5 million, structured as an asset deal with a customary list of excluded liabilities — meaning the buyer was acquiring the operating assets and was not assuming the trade debt or the senior loan. The buyer’s counsel signed off on the structure. The deal closed. The buyer began operating the acquired business.
Fourteen months later, a creditor of the original seller filed a Florida Uniform Fraudulent Transfer Act action in Hillsborough County circuit court naming the buyer as a defendant and seeking, in the alternative, an order setting aside the asset sale or a money judgment against the buyer for the value of the transferred assets. The creditor’s theory was that the seller had been insolvent at the time of the transfer, that the assets had been sold for less than reasonably equivalent value, and that the buyer had constructive notice of the seller’s financial condition. The case lasted seventeen months, cost roughly $400,000 in defense fees, and was settled in mediation for low six figures plus a release. The buyer’s purchase-price savings on the asset-deal structure had been entirely consumed.
FUFTA — the Florida Uniform Fraudulent Transfer Act, codified in Chapter 726 of the Florida Statutes — is one of the most regularly underestimated risk overlays on Florida asset-deal practice. The statute’s reach is broader than the typical asset-deal lawyer treats it as. The two-tier analysis it imposes — actual fraud and constructive fraud — captures transactions the parties did not intend as fraudulent. And the remedies available to the creditor reach the buyer’s pocket in ways that the carefully-negotiated “no assumed liabilities” clause in the asset purchase agreement does nothing to prevent.
The two-tier FUFTA framework
FUFTA lives in Chapter 726 of the Florida Statutes and operates on two parallel tracks. The first is actual-intent fraud under Section 726.105(1)(a) — a transfer is voidable if made “with actual intent to hinder, delay, or defraud” any creditor. The statute lists eleven “badges of fraud” the court may consider, ranging from whether the transfer was to an insider, whether the debtor retained possession or control after the transfer, whether the transfer was disclosed or concealed, whether the value received was reasonably equivalent to the value of the asset, and whether the debtor was insolvent at the time of the transfer or became insolvent shortly thereafter.
The second track is constructive fraud under Section 726.105(1)(b) and Section 726.106. A transfer is voidable, regardless of the transferor’s intent, if the debtor did not receive reasonably equivalent value for the asset and the debtor was either insolvent at the time of the transfer or rendered insolvent by it. The constructive-fraud track does not require any wrongdoing by either party. A solvent, motivated seller that sells assets to a good-faith buyer at a price the parties believed was fair can, on the right facts, fall within constructive fraud — particularly when the price card later turns out to have been below fair market value and the seller turns out to have been on the cusp of insolvency.
The two-tier structure means a fraudulent-transfer claim does not require the buyer to have done anything wrong. The claim runs against the transfer; the buyer is a defendant because the buyer is the transferee. The remedy the creditor seeks is, in the alternative, an order setting aside the transfer or a money judgment against the buyer for the value of the transferred property. The buyer’s defense — that the buyer is a good-faith transferee for value — exists, but it is fact-specific and not bulletproof.
The reasonably equivalent value analysis is where most deals stumble
The hinge of the constructive-fraud analysis is “reasonably equivalent value.” Florida courts apply a fact-specific test that considers the asset’s market value at the time of the transfer, the consideration paid, the marketability of the asset, the circumstances of the sale (arm’s length versus distressed), and the alternatives available to the seller at the time. The test is not strict mathematical equivalence — a 10% or 15% discount from market value will usually fall within reasonably equivalent value if the circumstances justify it. A 30% or 40% discount typically will not.
The trap is that the analysis is run in hindsight, after a creditor has filed the action and after the asset’s “true” value has been litigated through expert testimony. The buyer’s view at the time of the transfer — that the price was fair given the seller’s distress and the assets’ actual condition — may not survive expert testimony that values the assets higher in a less-distressed market. The buyer’s contractual purchase price is evidence of value but is not dispositive. The litigation posture often turns on whose appraiser the judge finds more credible after eighteen months of expert discovery.
The buyer’s protection against this risk is procedural rather than substantive. The buyer cannot, after the fact, manufacture a record showing reasonably equivalent value if the record does not exist. The buyer can, before closing, build a record that supports the value paid — independent valuation, multiple bids in a marketed process, lender confirmation, expert opinions on the seller’s distress level. The investment in a contemporaneous valuation record is the single best protection against a later constructive-fraud claim.
The insolvency element runs against the seller but the buyer pays
The insolvency element under both tracks of the statute is technical and turns on whether the seller’s debts exceeded the seller’s assets at a fair valuation, with adjustments for unliquidated and contingent claims. The analysis is run as of the date of the transfer and considers the seller’s full balance sheet, not just the assets being transferred.
For a financially-distressed seller — the typical FUFTA target — the insolvency element is rarely difficult for the creditor to prove. A seller that is months behind on trade payables, that has drawn down its working capital line, and that is selling its operating assets at distressed prices is, on the face of it, the kind of debtor the statute was written to address. The buyer’s defense on the insolvency element is typically that the seller had unpaid contingent assets that exceeded the trade debt — a claim, a license, a piece of intellectual property — but the courts apply a conservative valuation lens and the defense often fails.
The buyer’s pre-closing diligence on the seller’s solvency is, accordingly, more important on a Florida distressed-M&A deal than on a non-distressed one. A buyer that has reviewed the seller’s full balance sheet, has independent confirmation of the asset values, and has documented its view of the seller’s solvency at the time of the transfer is in a defensible position. A buyer that has accepted the seller’s own representations of solvency without independent diligence is in a less-defensible one. The standard merger-agreement solvency representation runs from the seller to the buyer at closing and is, in the FUFTA context, useful as a damages claim against the seller but useless as a defense against the creditor.
The good-faith transferee defense and what it covers
FUFTA Section 726.109 provides that a transfer is not voidable against a person who took in good faith and for reasonably equivalent value. The defense exists. The defense is harder to make out than asset-deal lawyers typically assume.
The good-faith element runs against the buyer’s knowledge of the seller’s circumstances. A buyer that conducted normal diligence, found no creditor disputes, and proceeded at arm’s length is typically in good faith. A buyer that knew the seller was being pressed by creditors, knew the seller was selling assets to avoid creditor pressure, or knew the price card was below fair value is not in good faith. The line is fact-specific. A buyer that obtained an indemnity from the seller specifically against fraudulent-transfer claims has, in some Florida cases, been deemed to have notice of the risk and to fall outside good faith — the indemnity is evidence the buyer knew the risk existed and chose to allocate it rather than diligence around it.
The reasonably-equivalent-value element of the defense runs into the same analysis as the underlying constructive-fraud claim. If the buyer paid reasonably equivalent value, the constructive-fraud claim fails on the merits and the defense is unnecessary. If the buyer did not pay reasonably equivalent value, the defense is unavailable because the second element is not satisfied. The good-faith transferee defense is, in practice, a defense against actual-intent fraud and a safety net against constructive-fraud claims where the value analysis is close.
The mere-continuation overlay compounds the risk
Florida’s successor-liability rules — including the mere-continuation exception that I have written about in the asset-sale context — operate alongside FUFTA and produce a stacked-risk profile. The mere-continuation rule treats the asset buyer as the legal continuation of the seller for certain liability purposes. FUFTA treats the asset transfer as voidable for fraudulent-transfer purposes. A buyer that runs into both rules on the same transaction is exposed to creditor claims under multiple theories simultaneously.
The factual overlap between the two doctrines is meaningful but not identical. Mere continuation focuses on continuity of ownership, management, operations, and identity between the seller and the buyer. FUFTA focuses on the seller’s insolvency, the value of the consideration, and the timing of the transfer. A transaction can trigger one doctrine without triggering the other. A transaction that triggers both — typical in distressed deals where the buyer is a related party or where the buyer absorbs the seller’s management — is in compound risk territory.
What to draft into the LOI on a Florida distressed deal
The LOI work on a Florida distressed M&A deal with any creditor-pressure overlay is short and high-leverage. Four lines manage the FUFTA risk before it lands at closing.
The first is a representation by the seller as to solvency, both at signing and at closing, with a specific reference to FUFTA and to the seller’s ability to pay its debts as they become due. The representation runs from the seller to the buyer and is, in litigation, useful as a damages claim against the seller. The representation should also be backstopped by an indemnity that survives closing — typically with an extended survival period given the four-year statute of limitations under FUFTA.
The second is a commitment by the seller to use a meaningful portion of the proceeds to satisfy creditor claims, with a creditor-notification procedure or a creditor-consent mechanism where the creditor’s claims are large enough to warrant it. The bulk-sales rules in Florida have been repealed, but a quasi-bulk-sale procedure — voluntary notice to known creditors with a specified objection period — is the cleanest way to deflect later fraudulent-transfer claims. The notice is not a complete defense but it is meaningful evidence of good faith.
The third is a contemporaneous valuation record. The LOI should commit the parties to obtaining either an independent valuation, a multi-bid marketed process, or a lender appraisal confirming the purchase price as fair value. The buyer’s diligence file should preserve the valuation documentation. The corporate-governance and diligence overlay on a Florida distressed deal is what separates the defensible record from the indefensible one.
The fourth is an escrow or holdback against FUFTA claims, sized to cover the realistic exposure given the seller’s creditor list and the magnitude of the asset transfer. A FUFTA-specific escrow is rare in non-distressed deals and routine in distressed ones. The escrow provides funds for the buyer to defend a creditor action and provides a backstop for any indemnity claim the buyer brings against the seller after the action concludes.
For a non-distressed Florida deal — a healthy seller selling at full market value to a strategic buyer at arm’s length — the FUFTA analysis is academic. For any deal where the seller has creditor pressure, financial distress, or a meaningful gap between the purchase price and the seller’s pre-distress valuation, the analysis is operational and the LOI is where the protections need to go in.
If you are working through a Florida asset deal where the seller is showing financial distress or where the creditor profile is meaningful, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
— John
