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According to Wikipedia, one of the reasons for using a shell company is that "Shell companies can be used to transfer assets from one company into a new one, while leaving the liabilities in the former company." My understanding, from a response to an earlier question, is that this much is legal.

But suppose the assets have been pledged as collateral for liabilities, and there are contracts governing this process. If shell companies are used to "shuffle assets" between, say companies A, B, and C, so that the assets and liabilities are separated, is this still legal? Or can these transactions be "collapsed" so that one combined company has ownership of both assets and liabilities and the contracts that govern them?

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If a company transfers out so much of its assets that it is left insolvent at the end of the transaction, without receiving substantially equivalent value in exchange, outside some very isolated circumstances where substantially equivalent value is conclusively determined to be present as a matter of law (e.g. certain auctions), the transaction is a "fraudulent transfer" and the transferor and transferee can be held liable as a result under the Uniform Fraudulent Transfer Act present in every U.S. state, and under parallel provisions of the U.S. Bankruptcy Code.

Sometimes, this can apply even when the liabilities don't arise until after the asset has been transferred out, when the liability is foreseeable and the company is undercapitalized.

Often this kind of situation can also give rise to liability on a piercing the corporate veil or "alter ego" theory against the owners of the company, or to liability imposed on directors and/or officers of the company for making distributions or transfers of assets that render a company insolvent.

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