In 1571 Parliament passed a statute making illegal and void any transfer made for the purpose of hindering, delaying, or defrauding creditors.' This law, commonly known as the Statute of Elizabeth, was intended to curb what was thought to be a wide-spread abuse. Until the seventeenth century, England had certain sanctuaries into which the King's writ could not enter. A sanctuary was not merely the interior of a church, but certain precincts defined by custom or royal grant. Debtors could take sanctuary in one of these precincts, live in relative comfort, and be immune from execution by their creditors. It was thought that debtors usually removed themselves to one of these precincts only after selling their property to friends and relatives for a nominal sum with the tacit understanding that the debtors would reclaim their property after their creditors gave up or compromised their claims. The Statute of Elizabeth limited this practice.
The basic prohibition of this statute, which prevents debtors from making transfers that hinder, delay, or defraud their creditors, has survived for over four centuries. A debtor cannot manipulate his affairs in order to shortchange his creditors and pocket the difference. Those who collude with a debtor in these transactions are not protected either. An individual creditor who discovers his debtor's assets have been fraudulently conveyed can reduce his claim to judgment and have the sheriff levy on the property that is now no longer in the debtor's hands (as long as the property is not in the hands of a bona fide purchaser for value).
'The difficulty that courts and legislatures have faced for hundreds of years has been one of trying to define what kinds of transactions hinder, delay, or defraud creditors. From very early on,common law judges developed per se rules, known as "badges of fraud," that would allow the courts to treat a transaction as a fraudulent conveyance even though no specific evidence suggested that the debtor tried to profit at his creditors' expense. For example, common law judges assumed that an insolvent debtor who sold property but retained possession of it without any special reason(such as a need to complete unfinished goods) was up to no good."
Douglas G. Baird and Thomas H. Jackson,
Fraudulent Conveyance Law and Its Proper Domain,
38 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol38/iss4/4