Adkisson's Voidable Transactions - previously known as - Fraudulent Transfers

Caution state

law variances!

Statute of Limitations

If an action under the UVTA is no longer actionable because it has been extinguished due to the passage of time, then any further analysis of the Act in the context of a given transaction is no more than academic. This is determined by Section 9.

 

Prefatory Note (UFTA 1984): The new Act also includes a statute of limitations that bars the right rather than the remedy on expiration of the statutory periods prescribed. The law governing limitations on actions to avoid fraudulent transfers among the states is unclear and full of diversity. The new Act recognizes that laches and estoppel may operate to preclude a particular creditor from pursuing a remedy against a fraudulent transfer or obligation even though the statutory period of limitations has not run.

 

UVTA § 9. EXTINGUISHMENT OF CLAIM FOR RELIEF.

A claim for relief with respect to a transfer or obligation under this [Act] is extinguished unless action is brought:

Reporter's Comment: 1. This section had no analogue in the Uniform Fraudulent Conveyance Act. Its purpose is to make clear that lapse of the statutory periods prescribed by the section bars the right and not merely the remedy. The section rejects the rule applied in United States v. Gleneagles Inv. Co., 565 F.Supp. 556, 583 (M.D.Pa. 1983) (state statute of limitations held not to apply to action by United States based on Uniform Fraudulent Conveyance Act). Another consequence of barring the right and not merely the remedy is that, under Restatement (Second) of Conflict of Laws § 143 (1971), if an action is brought in jurisdiction A and the action is determined to be governed by this Act as enacted in jurisdiction B, the action cannot be maintained if it is time-barred in jurisdiction B. The 1988 revision of §§ 142 and 143 of the Restatement (Second) of Conflict of Laws, which eliminated the right/remedy distinction, should not be applied to this Act. Because a voidable transfer or obligation may injure all of a debtor’s many creditors, there is need for a uniform and predictable cutoff time.

 

2. Statutes of limitations applicable to the avoidance of transfers and obligations vary widely from state to state and are frequently subject to uncertainties in their application. See Hesson, The Statute of Limitations in Actions to Set Aside Fraudulent Conveyances and in Actions Against Directors by Creditors of Corporations, 32 Cornell L.Q. 222 (1946); Annos., 76 A.L.R. 864 (1932), 128 A.L.R. 1289 (1940), 133 A.L.R. 1311 (1941), 14 A.L.R.2d 598 (1950), and 100 A.L.R.2d 1094 (1965). Together with § 6, this section should mitigate the uncertainty and diversity that have characterized the decisions applying statutes of limitations to actions to avoid transfers and obligations. The periods prescribed apply, whether the action under this Act is brought by a creditor or by a purchaser at a sale on execution levied pursuant to § 7(b) and whether the action is brought against the original transferee or subsequent transferee. The prescription of statutory periods of limitation does not preclude the barring of an avoidance action for laches. See § 12 and the accompanying Comment.

 

(a) under Section 4(a)(1), not later than four years after the transfer was made or the obligation was incurred or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant;

Reporter's Comment: 3. Subsection (a) provides that the four-year period ordinarily applicable to a claim for relief under § 4(a)(1) is extended to “one year after the transfer or obligation was or could reasonably have been discovered by the claimant.” Antecedents to that “discovery rule” have long existed in common law and in other statutes, and courts may take different approaches to filling out the meaning of subsection (a) by reference to such precedents. Thus, subsection (a) literally starts the one-year period when the transfer was or could reasonably have been discovered by the claimant, but cases applying subsection (a) have held that the period starts only when the transfer and its wrongful nature were or could reasonably have been discovered. See, e.g., Freitag v. McGhie, 947 P.2d 1186 (Wash. 1997); State Farm Mut. Auto. Ins. Co. v. Cordua, 834 F.Supp.2d 301, 306-08 (E.D. Pa. 2011). A recurring situation to which that distinction may be relevant is Spouse X’s transfer of assets beyond the reach of creditors, made in anticipation of divorcing Spouse Y after the four-year period has elapsed and made for the purpose of thwarting Spouse Y’s economic interests in the divorce. Spouse Y may well know of the transfer long before Spouse Y learns its wrongful purpose. Of course, even if the period specified in subsection (a) is held to have lapsed in a given case, law other than this Act might allow the transferred assets to be considered in making a division of assets in the ensuing divorce case.

 

JayNote: For an intent-based fraudulent transfer (a/k/a "actual fraudulent transfer"), the limitations period is the longer of four years or one year from the date of discovery. All limitations period are measured from the date of the transfer.

 

(b) under Section 4(a)(2) or 5(a), not later than four years after the transfer was made or the obligation was incurred; or

JayNote: For an insolvency-based fraudulent transfer (a/k/a "constructive fraudulent transfer") or an under-capitalization-based fraudulent transfer, the limitations period is a flat four years.

 

(c) under Section 5(b), not later than one year after the transfer was made.

JayNote: For an insolvency/insider based fraudulent transfer based on an old debt, the limitations period is only one year.

 

Bankruptcy Code § 544(b)

JayNote: Section 544(b) allows a Trustee to proceed under the applicable state voidable transaction laws to set aside a fraudulent transfer. It is frequently employed because the UVTA limitations period is often longer than that available under Bankruptcy Code section 548.

(b)

(1) Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.

 

(2) Paragraph (1) shall not apply to a transfer of a charitable contribution (as that term is defined in section 548(d)(3)) that is not covered under section 548(a)(1)(B), by reason of section 548(a)(2). Any claim by any person to recover a transferred contribution described in the preceding sentence under Federal or State law in a Federal or State court shall be preempted by the commencement of the case.

 

Bankruptcy Code § 548 - FRAUDULENT TRANSFERS AND OBLIGATIONS

(b) The trustee of a partnership debtor may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, to a general partner in the debtor, if the debtor was insolvent on the date such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation.

(e)

(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if—

(A) such transfer was made to a self-settled trust or similar device;

(B) such transfer was by the debtor;

(C) the debtor is a beneficiary of such trust or similar device; and

(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.

(2) For the purposes of this subsection, a transfer includes a transfer made in anticipation of any money judgment, settlement, civil penalty, equitable order, or criminal fine incurred by, or which the debtor believed would be incurred by—

(A) any violation of the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws; or

(B) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78l and 78o(d)) or under section 6 of the Securities Act of 1933 (15 U.S.C. 77f).

 

Bankruptcy Code § 550 - LIABILITY OF TRANSFEREE OF AVOIDED TRANSFER

(c) If a transfer made between 90 days and one year before the filing of the petition—

(1) is avoided under section 547(b) of this title; and

(2) was made for the benefit of a creditor that at the time of such transfer was an insider;

the trustee may not recover under subsection (a) from a transferee that is not an insider.

(d) The trustee is entitled to only a single satisfaction under subsection (a) of this section.

(f) An action or proceeding under this section may not be commenced after the earlier of—

(1) one year after the avoidance of the transfer on account of which recovery under this section is sought; or

(2) the time the case is closed or dismissed.

 

UVTA - Logical Organization (Designed For Litigators)

Click here to go to the Voidable Transactions Decision Chart

Overview of UVTA -- The process and result

 

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)(i) {Capitalization Test} -- (a)(2)(ii) Equity-Sense Insolvency Test

(b) {Badges of Fraud}

5 - Transfer or Obligation Voidable As To Present Creditor

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

 

Fraudulent Transfers In Bankruptcy

 

 

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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 Contact: jay [at] jayadkisson.com or by phone to 949-200-7773 or by fax to 877-698-0678.