Fraudulent transactions: when a deal is unwound three years after signing

Imagine: you bought commercial premises, registered ownership, invested in renovation and worked there quietly for two years. Then you receive a lawsuit from a bank that was never a party to your contract. The bank demands that your purchase be declared invalid — because the seller already owed it money when the sale took place.

This is a fraudulent transaction. The most unpleasant part: the risk falls not only on the person who was hiding assets, but also on whoever acquired them.

Part 1. The term is missing from the law — but the consequences are real

Let's start with a paradox that surprises even lawyers. The concept of a "fraudulent transaction" is not defined at the legislative level. You will not find it in the Civil Code of Ukraine. It is a term from academic doctrine and court practice, borrowed from the English word fraud.

The essence is simple: a contract that a debtor enters into not for the sake of the deal itself, but to move assets out of reach of creditors. Formally everything looks impeccable — there is a contract, signatures and registration. But the real purpose is different: to leave the creditor with nothing.

Because there is no direct rule, courts rely on the general principles of civil legislation. The core construction is this: Article 3 of the Civil Code enshrines good faith as a general principle, while Article 13 sets the limits on the exercise of civil rights and forbids the abuse of a right. A transaction concluded to the detriment of a creditor violates precisely the principle of good faith — and on that basis is recognised as invalid.

The Civil Code of Ukraine contains no separate definition of fraudulent transactions — they are identified through the application of the principles (general foundations) of civil legislation and the limits of the exercise of civil rights.

— Legal position of the Grand Chamber of the Supreme Court, ruling of 7 September 2022 in case No. 910/16579/20

The Grand Chamber went further in the same ruling and fixed a fundamentally important rule: breach of the general principles of civil legislation may be an independent ground for invalidating a transaction. A claimant does not have to "fit" the situation under a specific rule — it is enough to prove the parties' bad faith and their aim of causing harm.

The specific provisions courts rely on are para. 6 part 1 Art. 3 of the Civil Code (justice, good faith and reasonableness as principles of civil legislation) and parts 3 and 6 of Art. 13 (inadmissibility of abuse of a right).

Practical takeaway. The absence of a specialised rule does not save the parties. On the contrary — it widens the creditor's options, because the creditor is not confined to rigid formal frameworks. The court evaluates not the wording of the contract, but the parties' conduct and the real purpose of the deal.

Fraudulent and fictitious are not the same

These concepts are often confused, and the difference is fundamental.

A fictitious transaction (Art. 234 of the Civil Code) is one in which the parties never intended to create legal consequences at all. The asset was not actually transferred, the seller continues to use it, no money was paid.

A fraudulent transaction produces real consequences. The asset really did change hands and money may well have been paid. The problem is not the pretence but the purpose: to deprive the creditor of the possibility of recovery.

The same contract may therefore be attacked on different grounds — and creditors often plead them in the alternative. The Supreme Court considers this acceptable: a claimant may rely both on the general principles and on a specific rule, in particular Art. 234 or Art. 228 of the Civil Code.

Part 2. Four regimes: which rule applies to your situation

Specific rules exist only in a handful of areas. Where your counterparty sits inside that map determines both the depth of the risk and how far back the deal can be pulled up.

Situation	Legal basis and specifics
Outside specialised procedures	General principles — Art. 3, 13 CC; if needed Art. 234 or 228 CC. No rigid "suspect period": the court assesses the circumstances of each deal.
Debtor's bankruptcy	Art. 42 of the Bankruptcy Code — specialised grounds. A suspect period of three years before opening of the bankruptcy case applies, plus the bankruptcy procedure itself.
Enforcement proceedings	Part 4 Art. 9 of the Law "On Enforcement Proceedings". A state or private enforcement officer can also bring the claim.
Bank insolvency	Art. 38 of the Law "On the Deposit Guarantee System" — a separate mechanism for winding a bank down.

Note the number three years. Previously, under Art. 20 of the earlier bankruptcy law, the suspect period was one year. The Bankruptcy Code tripled it — and that reshaped the risk map for every buyer.

Case 1. Moving a debtor's funds through a subsidiary

Facts. Bankruptcy proceedings were opened against a large industrial enterprise and a moratorium on creditor claims was imposed. Nine months later, two banks — the debtor's creditor and another financial institution — concluded a claim assignment agreement for USD 2.8 million against the debtor. The new creditor was the debtor's own subsidiary, in which the debtor held more than 82% of shares. That subsidiary paid for the assignment using funds transferred to it in tranches by the debtor itself — over UAH 77 million disguised as "compensation".

Position of the first-instance and appellate courts. The claim was dismissed. The key argument was formal: the debtor was not a party to the contested contract, and a fraudulent transaction is one entered into by the debtor itself to the detriment of creditors.

What the Grand Chamber decided. The Supreme Court disagreed and formulated several important conclusions: a fraudulent contract may be either paid or gratuitous, unilateral or multilateral in terms of participants; what matters for the classification is the actual involvement of the debtor in the volitional acts, not the formal status of being a party; harm to creditors may consist not only of moving assets but also of creating preferences for one creditor at the expense of others; a deal that conceals another is feigned under Art. 235 CC, not fictitious.

Outcome. The rulings of the first-instance and appellate courts were cancelled, the case was sent for consideration within the bankruptcy proceedings.

Why this matters in practice. The scheme was multi-stage: the debtor acted not directly, but through a controlled entity, staying formally outside the contract. The Grand Chamber said the interconnection of all participants' acts and the ultimate purpose must be assessed, not the formal roster of parties to each individual transaction.

Ruling of the Grand Chamber of the Supreme Court of 7 September 2022 in case No. 910/16579/20.

Common misconception. Many people believe that if a deal was concluded more than three years before the bankruptcy, it is out of reach. That is wrong. Beyond the suspect period Art. 42 of the Bankruptcy Code does not apply — but the general rules of the Civil Code remain, and they have no formal time bar. Only the difficulty of proof changes, not the possibility of the challenge itself.

Part 3. Indicators by which a court will treat a contract as fraudulent

There is no universal formula — criteria depend on the specific transaction the debtor used. But the Supreme Court's practice produces a stable set of indicators. Each on its own proves nothing; the problem is created by their combination.

• Timing. The deal was concluded after the debt arose, after a demand was made, during litigation or already during enforcement. This is the strongest indicator.
• Gratuitous or below-market pricing. Gifts, symbolic prices, sales significantly below market. Absence of any consideration at all is especially telling.
• Connection between the parties. A relative, partner, controlled company, former employee. In bankruptcy this is called an "interested party".
• Retention of actual control. The asset is formally sold, but the debtor keeps using it, stays registered at the address, runs the business.
• Disposal of the only liquid asset. The very property from which the debt could realistically have been repaid is sold off.
• Absence of economic sense. The deal cannot be explained by any business purpose.
• State of insolvency at the time of the deal. The debtor could no longer meet its obligations, and the parties knew or should have known this.

Case 2. Selling a flat to a stepson during litigation

Facts. A creditor extended a foreign currency loan that was not repaid. He went to court, and on 31 July 2013 the debtor and his wife were held jointly liable. But already on 5 July 2013 — during the litigation, three weeks before the judgment — the debtor sold a one-room flat he owned to his wife's son from a previous marriage. Enforcement proceedings opened in December of the same year remained unenforced.

Position of the first-instance and appellate courts. The claim was dismissed: the claimant had not proved the contract was fictitious. The appellate court additionally noted that the disputed contract was paid — a sale, not a gift — and therefore the form of disposal alone did not indicate an intent to evade the court's decision.

What the Supreme Court decided. The Civil Cassation Court disagreed and formulated a key position: a contract concluded to the detriment of creditors may be either paid or gratuitous. For paid contracts, the court directly named the circumstances that allow them to be classified as fraudulent: timing of the contract; the counterparty (relative, stepchild, related or affiliated legal entity); price — market or non-market; presence or absence of actual payment by the counterparty.

Outcome. The appellate court's ruling was cancelled, the case was sent for a new appellate hearing.

Why this matters in practice. The paid nature of the contract does not save the parties — that is the main conclusion. The presence of a price and the fact of payment do not put the deal out of reach. But the case also shows the reverse: mere kinship of the parties, without analysis of the terms of the contract and the circumstances of payment, is not sufficient grounds either.

Ruling of the Civil Cassation Court within the Supreme Court of 7 October 2020 in case No. 755/17944/18, applying the conclusions of the Grand Chamber of the Supreme Court of 3 July 2019 in case No. 369/11268/16-ц.

Another typical scenario from commercial court practice: a debtor in a state of insolvency, during the suspect period, transferred money gratuitously to an interested party with no counter-consideration at all. The combination of four circumstances — insolvency, suspect period, gratuitous nature, and interest — was enough to invalidate the operation.

Separate test for paid contracts. The Civil Cassation Court expressly listed the circumstances under which precisely a paid contract is classified as fraudulent: timing of the contract; the counterparty; price — market or non-market; presence or absence of payment; and compliance with the procedure and order of priority when the law imposes such a procedure imperatively.

Doctrinally there are two elements: intent to harm another person's rights and actual harm as a consequence of the deal. Everything listed above are indicators by which the court establishes both of these elements.

Part 4. Who can challenge — and the circle is wider than it seems

• A creditor — even one who was not a party to the disputed contract. This is key: the right to sue belongs to a person whose property interests are affected by a deal between other people.
• An insolvency officer — under part 9 Art. 44 of the Bankruptcy Code, the right belongs to the property manager, the reorganisation manager, the liquidator and the restructuring manager.
• A state or private enforcement officer — within enforcement proceedings.
• The Deposit Guarantee Fund — for transactions of an insolvent bank.

Case law has extended the fraudulence doctrine to atypical constructions too: courts have invalidated not just sales and gift contracts but also marital contracts that redistributed property in favour of the other spouse, and even unilateral transactions — including the issuance of a power of attorney to dispose of assets.

Part 5. Consequences: what exactly the buyer loses

It is important to distinguish two mechanisms because the consequences differ.

Under the general rules the consequence is bilateral restitution: the parties are returned to the original position. The Supreme Court has explicitly stressed that the proper remedy is precisely restoration of the situation that existed before the deal — which in turn triggers cancellation of any property right registered on the basis of the invalidated contract.

Under Art. 42 of the Bankruptcy Code two alternative consequences are possible: an obligation to return the asset (unilateral restitution to the liquidation estate) or compensation for its value if the asset no longer exists in kind.

What this means for a buyer: you lose the asset. The claim to recover the money you paid becomes your claim against the seller — the very same insolvent debtor. Effectively you become just another creditor in the queue. That is why due diligence on a counterparty before a deal costs incomparably less than litigation after it.

Part 6. Procedural details that decide the outcome

Who is the defendant

The claim is filed against both parties to the disputed contract — the debtor and the acquirer of the asset. This is fundamental: a claim only against the debtor will not return the asset because it is already owned by another person who must be joined as a defendant.

If the asset has been resold further along, subsequent acquirers are also joined. This is where the hardest part of the dispute begins — the assessment of each acquirer's good faith along the chain.

Time limits: how long you can still challenge

The limitation period question has a practical peculiarity here. The general term is three years (Art. 257 of the Civil Code), but for a creditor it runs not from the date of the contract, but from the day the person learned or could have learned about the breach of their right (part 1 Art. 261 CC).

This matters because a creditor usually does not know about the deal at the moment it is made — they discover it later, most often already during enforcement, when it turns out there is nothing to seize. That is when the clock starts.

Do not confuse two different periods. The three-year suspect period under Art. 42 of the Bankruptcy Code is the window within which a completed transaction falls under the specialised grounds of challenge. The limitation period is the time within which one can go to court. These are different things and they run from different events.

Part 7. Two sides: how a creditor should act, and how a buyer can defend

If you are a creditor and see assets being moved

• Document the moment the debt arose. The date from which the debtor knew about the obligation is the foundation of the whole construction: this is what the deal date is compared against.
• Monitor the registers. The State Register of Real Property Rights, the register of legal entities, the register of encumbrances. Disposal of real estate is visible immediately.
• Gather evidence of connection between the parties and of the absence of real payment: bank statements, information about common founders, common address, family ties.
• Do not delay. The more time passes, the harder it is to prove causation and the more likely the asset will be resold to a bona fide acquirer.

If you are buying an asset — the check that saves you

This is the part most people skip. You need to check not only the asset itself, but also the financial condition of the seller.

• Court register. Are there claims against the seller for recovery, especially of amounts comparable to the value of the asset.
• Register of debtors and enforcement proceedings. An open enforcement is almost always a stop signal.
• Bankruptcy announcements. Check whether proceedings against the seller have been opened or a filing has been made.
• Market pricing. Buying significantly below market is not a lucky deal but future evidence against you. If the price is below market, document the reasons: technical condition, urgency, encumbrance.
• Reality of payment. Pay by bank transfer, keep the statements. Cash payment without confirmation is a gift for the future claimant.
• Actual acceptance of the asset. Handover act, changed locks, re-registered utility contracts, real use.

Key concept. Protection of a bona fide acquirer works only when good faith can be proved. If you bought an asset from a person with open enforcement proceedings at a third of the market price and paid in cash — no court will treat you as bona fide. Conversely: a complete due diligence package, a market price and bank-transfer payment make your position very strong.

Part 8. Takeaways for business

Fraudulence is not an exotic issue for big bankruptcies alone. It touches ordinary deals between ordinary companies, and the person hit hardest is often someone who had nothing to do with anyone else's debts.

If you are a debtor planning restructuring or an asset sale — do it transparently, at market prices, with real payment and a clear business purpose. An attempt to "put the property in the wife's name" will not survive court and will only create extra risks, including reputational ones.

If you are a creditor — do not stop at a court decision on recovery. A decision without assets is worth nothing, and the response window works against you.

If you are a buyer — spend a few hours checking the seller in the open registers. This is the cheapest insurance available.

A fraudulent transaction is dangerous precisely because it looks flawless. Signatures are real, registration is valid, money has been paid. Court practice evaluates not the form but the purpose — and that is how contracts believed to have been closed years ago come apart.

This material is analytical in nature and does not constitute individual legal advice. The concept of a fraudulent transaction is not defined by legislation and is shaped by evolving court practice. The classification of any specific deal depends on the totality of its circumstances.