A company generally may reorganize its business, transfer assets, or create affiliated entities. But California law can allow creditors to challenge transfers made to place assets beyond their reach.
The issue is particularly timely. On August 6, 2026, the California Attorney General amended its PFAS litigation against DuPont-related companies, alleging that corporate restructurings and asset transfers were used to shift liabilities and move valuable assets away from an entity facing substantial claims. The allegations remain pending and have not been adjudicated.
When Can an Asset Transfer Be Challenged?
California’s Uniform Voidable Transactions Act allows a creditor to challenge certain transfers made with actual intent to hinder, delay, or defraud a creditor. Cal. Civ. Code § 3439.04.
Courts may consider circumstances commonly referred to as “badges of fraud,” including whether:
- assets were transferred to an insider or affiliated company;
- the debtor retained control over the assets after the transfer;
- litigation or a substantial claim was already pending or threatened;
- substantially all of the debtor’s assets were transferred;
- the debtor received inadequate value in exchange; or
- the transfer left the debtor unable to satisfy its obligations.
No single factor necessarily determines the outcome. Courts examine the transaction as a whole.
A Corporate Restructuring Is Not Automatically Improper
Moving assets between related companies, forming subsidiaries, selling divisions, or restructuring a business can have legitimate business purposes.
The risk arises when a restructuring is used to separate valuable assets from liabilities in order to frustrate existing or foreseeable creditors.
For example, if a company facing a substantial lawsuit transfers its profitable operations to an affiliated entity for little consideration and leaves the defendant company with the liabilities but few assets, a creditor may have grounds to investigate and challenge the transaction.
What Remedies Are Available?
Depending on the circumstances, a creditor may seek remedies including avoidance of the transfer, an injunction preventing further transfers, attachment of assets, or recovery against certain transferees.
For businesses involved in significant litigation, both creditors and defendants should therefore consider asset transfers and corporate restructurings carefully. A transaction that appears to be ordinary corporate planning may become a central issue if creditors contend that its real purpose was to place assets beyond their reach.
Legal Authorities and Public Resources
- California Civil Code § 3439.04 (Uniform Voidable Transactions Act)
- California Department of Justice, amended PFAS complaint against DuPont-related companies (August 6, 2026)
Related practice areas: Business and Commercial Litigation · Civil Litigation