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

Caution state

law variances!

Did An Avoidable Transaction Occur?

Jay's Commentary

 

Assuming that a UVTA action is still timely, the next step is to determine whether a fraudulent transfer has occurred. As set forth below, there are five tests (§§ 4(a)(1), (2)(i), (2)(ii), 5(a) and (b)) to determine if a fraudulent transfer has occurred. But the vast majority of cases will be decided by one of two tests:

 

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), also known as a "Constructive Fraudulent Transfer"); and

 

  • Intent Test: Whether the Debtor intended to diminish the enforcement rights of creditors (§ 4(a)(1), also known as an "Actual Fraudulent Transfer").

 

The slang terms for these tests, Actual Fraudulent Transfer and Constructive Fraudulent Transfer, are anachronisms that are not at all descriptive of the analysis that is utilized by the UVTA. In fact the use of these terms is counterproductive and confusing, and the better practice is to simply drop their usage altogether.

 

The Insolvency Test of §5(a) by its nature is often resolved on summary judgment, and (rather uniquely as a matter of litigation practice) frequently in favor of creditors. By contrast, the Intent Test of §4(a)(1) is almost invariably disputed (what debtor would admit to cheating creditors unless he wanted the transaction unwound?), leading to significant factual questions of intent, and thus normally precluding the granting of summary judgment.

 

Thus, the Insolvency Test is the "more certain" test between the two, and promises creditors the prospect of an early judgment that avoids the costs of prolonged litigation and trial. Creditors, therefore, quite naturally will assert and vigorously prosecute the Insolvency Test when they believe the facts are in their favor, and for this reason between the two tests of §§ 4(a)(1) and 5(a), it is the Insolvency Test that will ordinarily be measured first.

 

Prefatory Note (UFTA 1984):The basic structure and approach of the Uniform Fraudulent Conveyance Act are preserved in the Uniform Fraudulent Transfer Act. There are two sections in the new Act delineating what transfers and obligations are fraudulent. Section 4(a) is an adaptation of three sections of the U.F.C.A.; § 5(a) is an adaptation of another section of the U.F.C.A.; and § 5(b) is new. One section of the U.F.C.A. (§ 8) is not carried forward into the new Act because deemed to be redundant in part and in part susceptible of inequitable application. Both Acts declare a transfer made or an obligation incurred with actual intent to hinder, delay, or defraud creditors to be fraudulent. Provisions of the new Act, carried forward with little change from the Uniform Fraudulent Conveyance Act, render a transfer made or obligation incurred without adequate consideration to be constructively fraudulent—i.e., without regard to the actual intent of the debtor—under one of the following conditions:

 

(1) the debtor was left by the transfer or obligation with unreasonably small assets for a transaction or business in which the debtor was engaged or was about to engage;

 

(2) the debtor intended to incur, or believed or reasonably should have believed that the debtor would incur, more debts than the debtor would be able to pay as they become due; or

 

(3) the debtor was insolvent at the time or as a result of the transfer or obligation.

 

Avoidable Transaction Tests:

(Use these four tests first, since a creditor can often win these on summary judgment)

(Use the Intent Test last, as summary judgment is difficult to obtain)

 

 

 

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

 

 

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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.