Adkisson's

Voidable Transactions

 - previously known as -

Fraudulent Transfers

 

Caution state law variances!

Remedies (Non-Money) - Avoidance, Attachment, Injunction, Levy, Receiver, Other

UVTA § 7 - Remedies of Creditor.

(a) In an action for relief against a transfer or obligation under this [Act], a creditor, subject to the limitations in Section 8, may obtain:

Reporter's Comment: 4. As under the Uniform Fraudulent Conveyance Act, a creditor is not required to obtain a judgment against the debtor-transferor or to have a matured claim in order to proceed under subsection (a). See §§ 1(3) and 1(4) ; American Surety Co. v. Conner, 251 N.Y. 1, 166 N.E. 783, 65 A.L.R. 244 (1929); 1 G. Glenn, Fraudulent Conveyances and Preferences 129 (Rev. ed. 1940).

 

7. If a transfer or obligation is voidable under § 4 or § 5, the basic remedy provided by this Act is its avoidance under subsection (a)(1). “Avoidance” is a term of art in this Act, for it does not mean that the transfer or obligation is simply rendered void. It has long been established that a transfer avoided by a creditor under this Act or its predecessors is nevertheless valid as between the debtor and the transferee. For example, in the case of a transfer of property worth $100 by Debtor to Transferee, held voidable in a suit by Creditor-1 who is owed $80 by Debtor, “avoidance” of the transfer leaves the $20 surplus with Transferee. Debtor is not entitled to recover the surplus. Nor is Debtor’s Creditor-2 entitled to pursue the surplus by reason of Creditor 1’s action (though Creditor-2 may be entitled to bring its own avoidance action to pursue the surplus). The foregoing principle is embedded in the language of subsection (a)(1), which prescribes “avoidance” only “to the extent necessary to satisfy the creditor’s claim.” Section 9(a) of the Uniform Fraudulent Conveyance Act was similarly limited. See, e.g., Becker v. Becker, 416 A.2d 156, 162 (Vt. 1980); De Martini v. De Martini, 52 N.E.2d 138, 141 (Ill. 1943); Markward v. Murrah, 156 S.W.2d 971, 974 (Tex. 1941); Society Milion Athena, Inc. v. National Bank of Greece, 22 N.E.2d 374, 377 (N.Y. 1939); National Radiator Corp. v. Parad, 8 N.E.2d 794, 796-97 (Mass. 1937); 1 G. Glenn, Fraudulent Conveyances and Preferences § 114, at 225 (Rev. ed. 1940). The transferee’s mental state is irrelevant to the foregoing, but a good-faith transferee may also be afforded protection by § 8.

 

It follows that “avoidance” of an obligation under subsection (a)(1) likewise should not mean its cancellation, but rather a remedy that recognizes the existence of the obligation and the superiority of the plaintiff creditor’s interest over the obligee’s interest. Ordinarily that should mean subordination of the obligation to the plaintiff creditor’s claim against the debtor. That would entail disgorgement by the obligee of any payments received or receivable on the obligation, to the extent necessary to satisfy the plaintiff creditor’s claim, with the obligee being subrogated to the plaintiff creditor when the latter’s claim is paid. Of course, if the obligation is unenforceable for reasons other than contravention of this Act, contravention of this Act does not render the obligation enforceable.

 

This Comment relates to the meaning of subsection (a)(1). If this Act is invoked in a bankruptcy proceeding, the remedial entitlements provided by the Bankruptcy Code may differ from those provided by this Act.

 

JayNote: Section 7 and Section 8(b) provide for the Creditor's remedies.

 

(1) avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim;

JayNote: The Creditor's main remedy is to simply avoid the transfer, which shifts title back to the Debtor so that the Creditor can enforce his judgment against the asset.

(2) an attachment or other provisional remedy against the asset transferred or other property of the transferee if available under applicable law; and

Reporter's Comment: 2. The availability of an attachment or other provisional remedy has been restricted by amendments of statutes and rules of procedure in response to Connecticut v. Doehr, 501 U.S. 1 (1991), Sniadach v. Family Finance Corp., 395 U.S. 337 (1969), and their progeny. This judicial development and the procedural changes that followed in its wake do not preclude resort to attachment by a creditor in seeking avoidance of a transfer or obligation. See, e.g., Britton v. Howard Sav. Bank, 727 F.2d 315, 317-20 (3d Cir. 1984); Computer Sciences Corp. v. Sci-Tek Inc., 367 A.2d 658, 661 (Del. Super. 1976); Great Lakes Carbon Corp. v. Fontana, 54 A.D.2d 548, 387 N.Y.S.2d 115 (1st Dep’t 1976). Section 7(a)(2) continues the authorization for the use of attachment contained in § 9(b) of the Uniform Fraudulent Conveyance Act, or of a similar provisional remedy, when applicable law provides therefor, subject to the constraints imposed by the due process clauses of the United States and state constitutions.

 

JayNote: If state law allows, the Creditor may get a pre-judgment attachment against the transferred asset.

(3) subject to applicable principles of equity and in accordance with applicable rules of civil procedure:

(i) an injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property;

Reporter's Comment: 3. Subsections (a) and (b) of § 10 of the Uniform Fraudulent Conveyance Act authorized the court, in an action on a voidable transfer or obligation, to restrain the defendant from disposing of his property, to appoint a receiver to take charge of his property, or to make any order the circumstances may require. Section 10, however, applied only to a creditor whose claim was unmatured. There is no reason to restrict the availability of these remedies to such a creditor, and the courts have not so restricted them. See, e.g., Lipskey v. Voloshen, 155 Md. 139, 143-45, 141 A. 402, 404-05 (1928) (judgment creditor granted injunction against disposition of property by transferee, but appointment of receiver denied for lack of sufficient showing of need for such relief); Matthews v. Schusheim, 36 Misc.2d 918, 922-23, 235 N.Y.S.2d 973, 976-77, 991-92 (Sup.Ct. 1962) (injunction and appointment of receiver granted to holder of claims for fraud, breach of contract, and alimony arrearages; whether creditor’s claim was mature said to be immaterial); Oliphant v. Moore, 155 Tenn. 359, 362-63, 293 S.W. 541, 542 (1927) (tort creditor granted injunction restraining alleged tortfeasor’s disposition of property).

 

JayNote: The Creditor can obtain an injunction to prevent the Transferee from further transferring the asset.

 

(ii) appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or

JayNote: The Creditor can also have a Receiver appointed to take charge of the asset (getting a Receiver appointed is often part of a Creditor's end game), since few debtors can stand a receiver very long. The UVTA provides a good way for a creditor to "get the receiver's foot in the door" by taking over a fraudulently-transferred asset, with the idea later being to ask the court to take the slight step of converting the existing limited receivership to a full one.

 

(iii) any other relief the circumstances may require.

JayNote: This phrase has been held to give courts a "carte blanche" to fashion remedies.

 

(b) If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds.

Reporter's Comment: 5. The provision in subsection (b) for a creditor to levy execution on a transferred asset continues the availability of a remedy provided in § 9(b) of the Uniform Fraudulent Conveyance Act. See, e.g., Doland v. Burns Lbr. Co., 156 Minn. 238, 194 N.W. 636 (1923); Montana Ass’n of Credit Management v. Hergert, 181 Mont. 442, 449, 453, 593 P.2d 1059, 1063, 1065 (1979); Corbett v. Hunter, 292 Pa.Super. 123, 128, 436 A.2d 1036, 1038 (1981); see also American Surety Co. v. Conner, 251 N.Y. 1, 6, 166 N.E. 783, 784, 65 A.L.R. 244, 247 (1929) (“In such circumstances he [the creditor] might find it necessary to indemnify the sheriff and, when the seizure was erroneous, assumed the risk of error”); McLaughlin, Application of the Uniform Fraudulent Conveyance Act, 46 Harv.L.Rev. 404, 441-42 (1933).

 

JayNote: If the Transferee does not voluntarily turn over the asset, the Court can allow the creditor to enforce the judgment directly against the asset (or its proceeds if it has been sold). However, this section and the Reporter's citation to the American Surety Co. v. Conner opinion seem to indicate that this provision authorizes a creditor to levy (without filing a fraudulent transfer lawsuit) on the transferred asset, and then the voidable transaction issue is then resolved at the hearing on the levy. Nobody seems certain how this works in actual practice.

 

(g) The following rules determine the burden of proving matters referred to in this section:

(1) A party that seeks to invoke subsection (a), (d), (e), or (f) has the burden of proving the applicability of that subsection.

(2) Except as otherwise provided in paragraphs (3) and (4), the creditor has the burden of proving each applicable element of subsection (b) or (c).

(3) The transferee has the burden of proving the applicability to the transferee of subsection (b)(1)(ii)(A) or (B).

(4) A party that seeks adjustment under subsection (c) has the burden of proving the adjustment.

JayNote: The burden of proving entitlement to a money judgment is on the Creditor.

 

(h) The standard of proof required to establish matters referred to in this section is preponderance of the evidence.

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.

 

 

COURT OPINIONS: NON-MONEY REMEDIES

 

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NOTE: Court opinions on attorneys' fees, punitive damages and conspiracy damages are listed on the page for opinions regarding Supplementary Law.

 

 

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)

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

 

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 RESOURCES

OTHER INFORMATIONAL WEBSITES BY JAY ADKISSON

 

  • About Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances - https://jayadkisson.com/

 

  • Captive Insurance Companies - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business, by the author of the best-selling book on the topic: Adkisson's Captive Insurance Companies - https://captiveinsurancecompanies.com/

 

 

  • Collecting On A Judgment - An explanation of common creditor remedies, strategies and tactics to enforce a judgment, including a discussion of common debtor asset protection strategies - https://collectingonajudgment.com/

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused - https://privateretirementplans.com/

 

  • Charging Orders - The confusing remedy against a debtor's interest in an LLC or partnership is explained in reference to the Uniform Partnership Act, the Uniform Limited Partnership Act, and the Uniform Limited Liability Company Act - https://chargingorder.com/

 

  • Protected Series LLCs - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017 - https://protectedseriesact.com/

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues - https://calejl.com/

 

  • Anti-SLAPP Laws - A collection of and commentary about Anti-SLAPP laws and significant court decisions on the subject within the United States - https://antislapplaws.com/

 

Available in 2019

 

Voidable Transactions: Fraudulent Transfers In Modern American Law, by Jay D. Adkisson

 

Click here for purchase information

© 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.