- previously known as -
Caution state law variances!
UVTA § 5(a)
Prefatory Note (UFTA 1984): As under the Uniform Fraudulent Conveyance Act, a transfer or obligation that is constructively fraudulent because insolvency concurs with or follows failure to receive adequate consideration (clause (3) above) is voidable only by a creditor in existence at the time the transfer occurs or the obligation is incurred. Either an existing or subsequent creditor may avoid a transfer or obligation for inadequate consideration when accompanied by a condition referred to in clause (1) or (2) above.
(a) A transfer made or obligation incurred by a debtor is voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
Reporter's Comment: 1. Subsection (a) is derived from § 4 of the Uniform Fraudulent Conveyance Act. It adheres to the limitation of the protection of that section to a creditor whose claim arose before the transfer or obligation described. As pointed out in Comment 3 accompanying § 4, this Act substitutes “reasonably equivalent value” for “fair consideration.”
JayNote: This is the "insolvency test" of a fraudulent transfer a/k/a "constructive fraudulent transfer".
There are only two elements:
(1) The debtor was insolvent (or rendered insolvent); and
(2) The debtor did not receive reasonably equivalent value.
Note that a transfer that occurs before the claim is not actionable under this test, i.e., only existing creditors can recover under this test.
Because both of these elements may be resolved on summary judgment in favor of the creditor if the evidence permits, the Insolvency Test is usually the "smart creditor's choice" for pursuing voidable transaction claims.
§ 5(c) Subject to Section 2(b), a creditor making a claim for relief under subsection (a) or (b) has the burden of proving the elements of the claim for relief by a preponderance of the evidence.
Reporter's Comment: 4. Subsection (c) was added in 2014. Sections 2(b), 4(c), 5(c), 8(g), and 8(h) together provide uniform rules on burdens and standards of proof relating to the operation of this Act. The principles stated in Comment 11 to § 4 apply to subsection (c).
Prefatory Note (UVTA 2014): Evidentiary Matters. New §§ 4(c), 5(c), 8(g), and 8(h) add uniform rules allocating the burden of proof and defining the standard of proof with respect to claims for relief and defenses under the Act. Language in the former comments to § 2 relating to the presumption of insolvency created by § 2(b) has been moved to the text of that provision, the better to assure its uniform application.
JayNote: The creditor has the burden of proof. Since this test is largely mathematical, the courts routinely grant summary judgment for the creditor under this test.
Defenses Peculiar to §§ 4(a)(2) and 5
§ 8(e) A transfer is not voidable under Section 4(a)(2) or Section 5 if the transfer results from:
JayNote: A creditor cannot void all but an intent-based fraudulent transfer if it involves: (1) Termination of a lease; or (2) Enforcement of a UCC Article 9 security interest.
(1) termination of a lease upon default by the debtor when the termination is pursuant to the lease and applicable law; or
Reporter's Comment: 5. Subsection (e)(1) rejects the rule adopted in Darby v. Atkinson (In re Farris), 415 F.Supp. 33, 39-41 (W.D.Okla. 1976), that termination of a lease on default in accordance with its terms and applicable law may constitute a voidable transfer.
(2) enforcement of a security interest in compliance with Article 9 of the Uniform Commercial Code, other than acceptance of collateral in full or partial satisfaction of the obligation it secures.
Reporter's Comment: Subsection (e)(2) protects a transferee that acquires a debtor’s interest in an asset as a result of the enforcement by a secured party (which may but need not be the transferee) of rights pursuant to and in compliance with the provisions of Part 6 of Article 9 of the Uniform Commercial Code. Cf. Calaiaro v. Pittsburgh Nat’l Bank (In re Ewing), 33 B.R. 288, 9 C.B.C.2d 526, CCH B.L.R. ¶ 69,460 (Bankr. W.D.Pa. 1983) (sale of pledged stock held subject to avoidance under § 548 of the Bankruptcy Code), rev’d, 36 B.R. 476 (W.D.Pa. 1984) (transfer held not voidable because deemed to have occurred more than one year before bankruptcy petition filed). The global requirement of Article 9 that the secured party enforce its rights in good faith, and the further requirement of Article 9 that certain remedies be conducted in a commercially reasonable manner, provide substantial protection to the other creditors of the debtor. See U.C.C. §§ 1-304, 9-607(b), 9 610(b) (2014). The exemption afforded by subsection (e)(2) does not extend to acceptance of collateral in full or partial satisfaction of the obligations it secures. That remedy, contemplated by U.C.C. §§ 9-620–9-622 (2014), is sometimes referred to as “strict foreclosure.” An exemption for strict foreclosure is inappropriate because compliance with the rules of Article 9 relating to strict foreclosure may not sufficiently protect the interests of the debtor’s other creditors if the debtor does not act to protect equity the debtor may have in the asset.
Prefatory Note (UVTA 2014): Defenses. The amendments refine in relatively minor respects several provisions relating to defenses available to a transferee or obligee, as follows: (3) Section 8(e)(2) as originally written created a defense to an action under § 4(a)(2) or § 5 to avoid a transfer if the transfer results from enforcement of a security interest in compliance with Article 9 of the Uniform Commercial Code. The amendments exclude from that defense acceptance of collateral in full or partial satisfaction of the obligation it secures (a remedy sometimes referred to as “strict foreclosure”).
Bankruptcy Code § 548(a)(1)(B)(I)
(1) The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
(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.
COURT OPINIONS: INSOLVENCY TEST
C O M M O N P A G E F O O T E R
UVTA AUDIO PRESENTATION
Need to become fluent in the UVTA quickly? This four-hour audio program by Jay Adkisson and Dave Slenn, ABA Advisors to the UVTA Drafting Committee, explains key features of the UVTA, how they operate, and why. Hosted by Leimberg Information Services. Click here for more
RECENT ARTICLES ON FRAUDULENT TRANSFERS
2019.05.30 ... Understanding The Elements Of The UVTA Tests For A Voidable Transaction
2019.05.20 ... Good Faith Not Enough For Transferee To Establish Fraudulent Transfer Defense In Hawk
2019.03.31 ... Voidability Of Sham Lawsuit And Judgment At Issue In Chen
2019.02.22 ... California Court Of Appeals Swings And Misses On Pre-Marital Fraudulent Transfer Agreement In Sturm
2019.02.12 ... Why The Mere Incorporation Or Formation Process For A New Entity Is Not A Fraudulent Transfer
2019.01.30 ... Resignation Of Corporate Officer Not A Fraudulent Transfer In Texas Opinion
Many more articles on voidable transactions law found here
UVTA - LOGICAL ORGANIZATION (Designed For Litigators)
Overview of UVTA -- The process and result
Learn The Vocabulary Of The Act (Main Page)
Has A Voidable Transaction Occurred? (Main Page)
Does The Transferee Have A Defense? (Main Page)
What Remedies Are Available? (Main Page)
Other Helpful Provisions (Main Page)
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
5 - Transfer or Obligation Voidable As To Present Creditor
8 - Defenses, Liability, And Protection Of Transferee Or Obligee
10 - Governing Law
15 - Short Title
OTHER SOURCES OF FRAUDULENT TRANSFER LAW
Fraudulent Transfers In Bankruptcy - Main Page
28 U.S.C. § 3301, et seq. - Where United States is the creditor
Common Law Fraudulent Transfer - Still exists in most states
Fraudulent Conveyances Act of 1571 a/k/a Statute of 13 Elizabeth - The medieval statute to which the modern American UVTA traces some of its roots.
TOPICAL COURT OPINIONS
OTHER INFORMATIONAL WEBSITES BY JAY ADKISSON
Available in 2019
Voidable Transactions: Fraudulent Transfers In Modern American Law, by Jay D. Adkisson
© 2018 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 https://voidabletransactions.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.