1. The Uniform Voidable Transactions Act; or, the 2014 Amendments to the Uniform Fraudulent Transfer Act: Current Status
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Rhode Island Bar Association
Continuing Legal Education
September 26, 2016

2. Presented by: Edwin E. Smith
Partner, Morgan, Lewis & Bockius LLP, Boston and New York
Phone:
Chair, Drafting Committee for the 2014 Amendments
Slides prepared by Mr. Smith and
Kenneth C. Kettering
Visiting Professor at Large
Phone:
Reporter, Drafting Committee for the 2014 Amendments

3. Uniform Fraudulent Transfer Act (“UFTA”), issued 1984
Uniform Fraudulent Transfer Act (“UFTA”), issued Enacted by 44 states, D.C. & V.I.
Uniform Fraudulent Conveyance Act (“UFCA”), issued 1918, is still in force in two states: MD, NY.
Idiosyncratic (four states): AK, LA, SC, VA (and Puerto Rico).

4. The 2014 amendments to the UFTA
First amendments to the UFTA since it was issued in 1984.
Official text is available at the Uniform Law Commission’s website:
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Amendments%20(2014)%20-%20Formerly%20
Fraudulent%20Transfer%20Act

5. Nature of the amendments
Not a comprehensive revision of the UFTA.
Drafting committee’s mandate was limited to a few narrowly defined issues.
Drafting committee was, however, authorized to revise the official comments as it saw fit.
Initial impetus for the amendment project: adding a choice of law rule to the UFTA.

6. High Points of the 2014 Amendments

7. Uniform Fraudulent Transfer Act Uniform Voidable Transactions Act
The 2014 amendments change the title of the act from “Uniform Fraudulent Transfer Act” to “Uniform Voidable Transactions Act” (“UVTA”).
Not motivated by the relatively minor substantive changes made in 2014.
Rather, the word “Fraudulent,” though sanctioned by historical usage, was a misleading description of the Act as originally written.
Fraud is not, and never has been, a necessary element of a claim under the Act.
No substantive effect.

8. Addition of a rule on choice of law
No current statutory rule. Courts’ exercise of common law principles has been chaotic.
New UVTA § 10: A voidable transfer claim is governed by the law of the jurisdiction in which the debtor is “located” when the transfer was made.
Individual: principal residence
Organization with one place of business: that place
Organization with more than one place of business: chief executive office
Same as the baseline rule of UCC Article 9 for choice of law governing lien priority. (§§ 9-301(1), 9-307(b)).

9. Uniform rules on burden of proof & standard of proof
As with the new choice of law rule, these are additions that fill gaps in the 1984 UFTA.
Most notable: standard of proof is the ordinary standard in civil actions, “preponderance of the evidence.”
UVTA §§ 4(c), 5(c), 8(h).
Impact of Husky International Electronics, Inc. v. Ritz, __ U.S. __ (2016) addressing the “actual fraud” discharge exception in BC §523(a)(2)(A) .

10. Definition of “insolvency” fine-tuned
Basic definition unchanged:
Debtor is “insolvent” if debts exceed assets, at fair valuations. (UFTA § 2(a)).
Amendments delete the UFTA’s archaic special definition of “insolvency” for a partnership.
That special definition credits a partnership with the net worths of its general partners, in addition to the partnership’s own assets. (UFTA § 2(c)).

11. Strict foreclosure of an Article 9 security interest is no longer immunized from “constructive fraud” challenge
UFTA (1984) has two safe harbors that immunize a transfer resulting from enforcement of a lien from “constructive fraud” challenge:
For a mortgage, deed of trust or Article 9 security interest, a transfer in a “regularly conducted, noncollusive foreclosure sale” is immune. (UFTA § 3(b)).
For an Article 9 security interest, any transfer resulting from enforcement in compliance with Article 9 is immune. (UFTA § 8(e)(2)).
This includes strict foreclosure, as well as foreclosure sale.
The amendments remove strict foreclosure from the second safe harbor.

12. The amendments fine-tune one of the defenses available to a good-faith transferee.
If a debtor makes a transfer with intent to “hinder, delay or defraud” a creditor, UFTA § 8(a) gives the transferee a complete defense if the transferee acted in good faith and gave reasonably equivalent value.
The amendments limit (clarify?) this defense to apply only if the reasonably equivalent value went to the debtor (i.e., not to some other person).

13. Full discussion of the 2014 amendments:
Kenneth C. Kettering, The Uniform Voidable Transactions Act; or, the 2014 Amendments to the Uniform Fraudulent Transfer Act, 70 Bus. Law. 777 (2015)
Available at the Uniform Law Commission’s website, cited above, and at SSRN:
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14. Enactment Status of the 2014 Amendments

15. Enactment of the 2014 amendments as of May 17, 2016
Enacted (nine states): CA, GA, ID, IA, KY, MN, NM, NC, ND.
Introduced, not yet enacted (six): IN, MA, NJ, NY, RI, SC.

16. From the 19th Century to the 21st in a single bound
Kentucky, in which the UFTA had not been in force (it had ancient idiosyncratic law), in 2015 enacted the UFTA with the 2014 amendments.
New York, in which the ancient UFCA is in force, is showing signs of moving in the same direction.

17. Concerns raised to date: Choice of Law
The 2014 amendments have been generally well received to date.
Colorado: rethinking choice of law from scratch:
Law of the state of the plaintiff creditor?
Law of the situs of the transferred property?
Florida: concern that the choice of law rule might somehow outflank Florida’s generous homestead exemption.
It won’t.

18. Concerns raised to date: the Comments
“Asset protection” bar dislikes that the comments note cases adverse to positions apparently taken by some aggressive planners. Examples:
When the asset protection trust was first invented (in Pennsylvania, in the mid-1800s), without statutory validation, courts promptly held that a transfer into such a trust is avoidable. (UVTA § 4, cmt. 2, ¶ 1).
Cases have held avoidable conversion of a corporation to an LLC or partnership, when done with intent to hinder the owners’ creditors. (UVTA § 4, cmt. 8, ¶ 4).
Point of such a conversion: if a creditor gets a judgment against an owner of an interest in the LLC/partnership, that interest could not be levied upon but would be subject only to a charging order.

19. Be just before you are generous.
― James Joyce, Ulysses
Part II, Episode 15 (Circe)