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CA Intermediate · Corporate and Other Laws · The Limited Liability Partnership Act, 2008

Dhruv LLP is under pressure from creditors. Two months before the LLP's winding up commences, the partners Esha and Farid transfer a major LLP property to a relative of Farid for a nominal sum with the intention of defrauding creditors. Under the LLP Act, 2008, which statement is correct?

The transfer can be treated as fraudulent and set aside. Partners who knowingly carried on business to defraud creditors lose the protection of limited liability and become personally liable, without limit, for the LLP's debts, besides facing penal consequences.

  1. AThe transfer is valid because partners have full authority to deal with LLP property
  2. BThe transfer is voidable only if the LLP agreement so provides
  3. CThe transfer may be treated as a fraudulent transaction and be set aside, and partners who knowingly carried on business with intent to defraud creditors may be personally liable without limit for the LLP's debtsCorrect
  4. DOnly the relative is liable to restore the property, and the partners bear no liability

Explanation

The Act provides that where any business is carried on with intent to defraud creditors or for a fraudulent purpose, those knowingly party to it are personally liable for the LLP's liabilities, and are also liable to punishment. Fraudulent transfers made within a specified period before winding up can be set aside as well. The shield of limited liability is therefore lost for the knowing partners.

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