Voidable Transactions

 - previously known as -

Fraudulent Transfers

Caution state law variances!

Introduction to the Uniform Voidable Transactions Act

(a/k/a the 2014 Revisions to the Uniform Fraudulent Transfers Act)

The Uniform Fraudulent Transfers Act (UFTA, phonetic "oof-ta") was approved by the Uniform Law Commission (ULC) in 1984. After a 2011 article by Prof. Ken Kettering appeared suggesting that the UFTA poorly addressed certain conflict-of-laws issues, the ULC in 2012 formed a Drafting Committee (of which Jay Adkisson, the author of this website, was an ABA Adviser), to consider revising the UFTA so as to address the conflict-of-laws and other, minor, technical issues. The Committee was Chaired by noted Boston bankruptcy attorney and ULC Commissioner Ed Smith, and Prof. Kettering served as the Reporter.

 

Rather quickly, the Drafting Committee expanded its scope to consider other issues that the courts had found problematic with the UFTA, such as with as burden of proof issues. Numerous live meetings were held where persons representing various interests presented their own issues with the UFTA, such as charitable organizations that received as donations the proceeds of Ponzi schemes and were required under the UFTA to turn over those proceeds to creditors.

 

As the Drafting Committee neared the completion of its work in 2014, a suggestion was made, and adopted, that the UFTA be renamed to make clear that classic, misrepresentational fraud -- a concept which has always been largely alien to fraudulent transfer law -- had little if any application to the Act, and that courts should quit attempting to apply various misrepresentational fraud rules (such as heightened pleading standards, to just give one of many examples) to fraudulent transfer cases.

 

The ULC at its annual meeting in 2014 unanimously adopted what had previously been known as the "2014 revisions to the Uniform Fraudulent Transfers Act", as instead the Uniform Voidable Transactions Act (UVTA, phonetic "you-veet-uh").

 

Other than the name change, the UVTA differs only slightly than the UFTA in these substantive aspects:

 

(1) A new Section 10 was included to address the conflict-of-laws issues;

 

(2) A new Section 11 was included in anticipation of the future proliferation of Series LLC statutes; and

 

(3) Throughout the "working" sections of the Act (§§ 4, 5, 7, and 8), directions were given as to which party bears the burden of proof as to salient issues.

 

The bulk of the remaining changes incorporated into the UVTA were largely technical and non-substantive.

 

The bottom line is that the UVTA is, substantively, well upwards of 95% the same as the UFTA, and even most of the substantive changes simply reflect the majority opinions of the courts that had considered these issues, and so whether a particular state has or has not adopted the UVTA will probably make little difference to the bulk of the analysis and notes given below, unless otherwise indicated. However, what the UVTA added to the the UFTA was not insignificant, and should be of substantial positive value to the courts and litigants alike.

 

Analyzing Claims Under The Uniform Voidable Transactions Act

Like the UFTA, of which the UVTA is simply a revision and not really a "new" Act, the UVTA is a complicated Act to read in the abstract, largely because it follows a prescribed order that is commonplace with all Uniform Acts, i.e., definitions at the beginning, the "working" provisions in the middle, and minor and sundry technical issues at the end. Analysis is also complicated by the fact that the UVTA in significant part reduces into statutory form over 2,000 years of fraudulent transfer law, with certain baggage.

 

The baggage consists largely of two types: (1) Provisions that seem out of place to the common law of fraudulent transfers, but which were added over the years by those with special interest in particular issues, i.e., provisions that are aimed at mergers and acquisitions, or rehabilitating a debtor; and (2) Provisions that attempt to harmonize fraudulent transfer law with other significant areas of law, most predominantly Bankruptcy Code sections 548 and 550, and the Uniform Commercial Code.

 

Nonetheless, an analysis of the vast majority of potential claims arising under the UVTA can be answered by a simple three-step process:

 

(1) Did an avoidable transaction occur?

 

(2) Can the Transferee assert a defense?

 

(3) What are the remedies available to the Creditor?

 

With regard to the second step, the UVTA provides four tests as to whether a fraudulent transfer has occurred (§§ 4(a)(1) and (2), and 5(a) and (b)). Of these, by far the two most commonly used tests are:

 

Intent Test: Did the Debtor intend to diminish the collection ability of the Creditor? (§ 4(a)(1))

 

Insolvency Test: Was the Debtor insolvent (or rendered insolvent) at the time of the transfer, and did the Debtor receive reasonably equivalent value in exchange? (§ 5(a))

 

Following these four steps in this order will normally allow practitioners to discern relatively quickly whether an avoidable transaction action is viable for not.

 

Issues Not Addressed By The UVTA

As important as what is in the UVTA is what is not in it. The UVTA does not address certain important questions, which are thus wholly dependent upon other law in a given jurisdiction. These questions include:

 

(1) Whether attorney's fees are awardable to the prevailing party in an UVTA action?

 

(2) Whether punitive damages are awardable to a prevailing creditor in an UVTA action, and against whom?

 

(3) Whether a debtor must be included as a party-defendant in an UVTA action where the creditor seeks only a money judgment against a transferee?

 

The answers to such questions will be determined by other law of the applicable jurisdiction.

 

 

Prefatory Note to the UVTA

{ Those parts of the Prefatory Note to the UVTA which deal with specific sections have been moved to the particular webpage for that section. The general Prefatory Note follows. }

Prefatory Note (UFTA 1984): The Uniform Fraudulent Conveyance Act was promulgated by the National Conference of Commissioners on Uniform State Laws in 1918. As of 1984 it has been adopted in 25 jurisdictions, including the Virgin Islands. It has also been adopted in the sections of the Bankruptcy Act of 1938 and the Bankruptcy Reform Act of 1978 that deal with fraudulent transfers and obligations.

 

Prefatory Note (UFTA 1984): The Uniform Fraudulent Conveyance Act was a codification of the “better” decisions applying the Statute of 13 Elizabeth. See Analysis of H.R. 12339, 74th Cong., 2d Sess. 213 (1936). The English statute was enacted in some form in many states, but, whether or not so enacted, the voidability of fraudulent transfers was part of the law of every American jurisdiction.

 

Prefatory Note (UFTA 1984): The Conference was persuaded in 1979 to appoint a committee to undertake a study of the Uniform Fraudulent Conveyance Act with a view to preparing the draft of a revision. The Conference was influenced by the following considerations:

 

(1) The Bankruptcy Reform Act of 1978 has made numerous changes in the section of that Act dealing with fraudulent transfers and obligations, thereby substantially reducing the correspondence of the provisions of the federal bankruptcy law on fraudulent transfers with the Uniform Fraudulent Conveyance Act.

 

(2) The Committee on Corporate Laws of the Section of Corporations, Banking & Business Law of the American Bar Association, engaged in revising the Model Corporation Act, suggested that the Conference review provisions of the Uniform Fraudulent Conveyance Act with a view to determining whether the Acts are consistent in respect to the treatment of dividend distributions.

 

(3) The Uniform Commercial Code, enacted at least in part by all 50 states, had substantially modified related rules of law regulating transfers of personal property, notably by facilitating the making and perfection of security transfers against attack by unsecured creditors.

 

(4) Debtors and trustees in a number of cases have avoided foreclosure of security interests by invoking the fraudulent transfer section of the Bankruptcy Reform Act.

 

(5) The Model Rules of Professional Conduct, adopted by the House of Delegates of the American Bar Association on August 2, 1983, forbid a lawyer to counsel or to assist a client in conduct that the lawyer knows is fraudulent.

 

UVTA - Logical Organization (Designed For Litigators)

Click here to go to the Voidable Transactions Decision Chart

 

UVTA - Numerical Organization (Confusing & Difficult To Use)

The Uniform Law Commission's complete copy of the UVTA with comments in PDF format is available here. The webpage for the UVTA, showing states that have enacted and much other information regarding the Act is found here.

 

1 - Definitions

(1) Affiliate -- (2) Asset -- (3) Claim -- (4) Creditor -- (5) Debt -- (6) Debtor -- (7) Electronic -- (8) Insider -- (9) Lien -- (10) Organization -- (11) Person -- (12) Property -- (13) Record -- (14) Relative -- (15) Sign -- (16) Transfer -- (17) Valid Lien

2 - Insolvency

3 - Value

4 - Transfer Or Obligation Voidable As To Present Or Future Creditor

(a)(1) {Intent Test} -- (a)(2) {Capitalization Test} -- (b) {Badges of Fraud}

5 - Transfer or Obligation Voidable As To Present Creditor

(a) {Insolvency Test} -- (b) {Insider Test}

6 - When Transfer Is Made Or Obligation Is Incurred

7 - Remedies Of Creditor

8 - Defenses, Liability, And Protection Of Transferee Or Obligee

{Main Provisions} -- (b) and (c) {Money Judgment}

9 - Extinguishment Of Claim For Relief

10 - Governing Law

11 - Application To Series Organization

12 - Supplementary Provisions

13 - Uniformity Of Application And Construction

14 - Relation To Electronic Signatures In Global And National Commerce

15 - Short Title

16 - Repeals; Conforming Amendment

 

 

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© 2017 Jay D. Adkisson. All rights reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction.  This site http://www.voidabletransactions.com