BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 161|
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CONSENT
Bill No: SB 161
Author: Vidak (R)
Amended: 4/14/15
Vote: 21
SENATE JUDICIARY COMMITTEE: 7-0, 4/21/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SUBJECT: Uniform Fraudulent Transfer Act
SOURCE: California Commission on Uniform State Laws
DIGEST: This bill renames the existing Uniform Fraudulent
Transfer Act (UFTA) to the Uniform Voidable Transactions Act
(UVTA) and adopts various changes to the act based on updates
made to the underlying model act by the National Conference of
Commissioners on Uniform State Laws. Among other things, this
bill:
Substitutes references to "fraudulent" with "voidable;"
Modifies the test for insolvency and repeals the insolvency
test for partnerships;
Specifies various burdens of proof in making or defending a
claim for relief;
Adds a choice of law rule for claims of the nature governed by
the UVTA;
Adds new and modernizes existing definitions; and
Revises cross-references and makes other technical or
non-substantive changes.
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This bill specifies that the modifications made to the UFTA
apply only to a right of action that accrued, transfer made, or
obligation incurred, on or after the effective date of this
bill.
ANALYSIS:
Existing law:
1) Establishes, under the UFTA, the conditions under which a
transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, and sets forth the remedies of a
creditor with respect to a fraudulent transfer or obligation,
including, but not limited to, voiding the transfer.
2) Provides that a debtor is insolvent if, at fair valuations,
the sum of the debtor's debts is greater than all of the
debtor's assets.
3) Provides that a debtor which is a partnership is insolvent
if, at fair valuations, the sum of the partnership's debts is
greater than the aggregate of all the partnership's assets
and the sum of the excess of the value of each general
partner's nonpartnership assets over the partner's
nonpartnership debts.
4) Provides that a debtor who is generally not paying his or
her debts as they become due is presumed to be insolvent.
5) Provides that a transfer made or obligation incurred by a
debtor is fraudulent as to a creditor, whether the creditor's
claim arose before or after the transfer was made or the
obligation was incurred, if the debtor made the transfer or
incurred the obligation:
With actual intent to hinder, delay or defraud any
creditor of the debtor; and
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Without receiving a reasonably equivalent value in
exchange for the transfer or obligation, as specified.
1) Provides that a transfer made or obligation incurred by a
debtor is fraudulent 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 the time or became insolvent as a result of the transfer
or obligation.
2) Allows a creditor, subject to specified limitations, to
bring an action for relief against a transfer or obligation
under the UFTA, to obtain certain remedies with respect to
not only "the asset transferred" but also "its proceeds."
3) Authorizes creditors to seek a remedy by way of an
attachment or other provisional remedy against the asset
transferred or its proceeds in accordance with certain
attachment procedures specified in the Code of Civil
Procedure.
4) Provides that a transfer is voidable if it is made with
actual intent to hinder, delay, or defraud any creditor of
the debtor. Existing law provides that a transfer or an
obligation is not voidable under that provision if against a
person who took in good faith and for a reasonably equivalent
value against any subsequent transferee or obligee.
5) Provides that except as otherwise provided in this section,
to the extent a transfer is voidable in an action by a
creditor under the UFTA, as specified, the creditor may
recover judgment for the value of the asset transferred, as
adjusted as specified, or the amount necessary to satisfy the
creditor's claim, whichever is less. Existing law provides
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that such a judgment may be entered against:
The first transferee of the asset or the person for
whose benefit the transfer was made; or
Any subsequent transferee other than a good faith
transferee who took for value or from any subsequent
transferee.
This bill:
1) Renames the UFTA to the Uniform Voidable Transactions Act
(UVTA), substitutes references to the word "fraudulent" with
the term "voidable," instead, or otherwise strikes obsolete
references to the term "fraudulent."
2) Modifies the existing definitions of "claim" (to specify
that the definition does not apply to "claims for relief")
and "person" (to include "instrumentalities," "business or
nonprofit entities," but removes "organizations" and other
unspecified "commercial entities" from the definition).
3) Adds add new definitions for the terms "electronic,"
"organization," "record," and "sign," as specified and
updates terminology throughout the UVTA accordingly.
4) Repeals the special insolvency test for debtors that are
partnerships.
5) Revises the presumption of insolvency specified under
existing law to:
Specify instead that a debtor that is generally not
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paying the debtor's debts as they become due other than as
a result of a bona fide dispute is presumed to be
insolvent; and
Provide that this presumption imposes on the party
against which the presumption is directed the burden of
proving the nonexistence of insolvency is more probable
than its existence.
1) Specifies that a creditor making a claim for relief under
certain provisions of existing law has the burden of proving
the elements of the claim for relief by a preponderance of
the evidence.
2) Revises existing law (which allows a creditor to bring an
action for relief against a transfer or obligation under the
UFTA to obtain certain remedies with respect to not only "the
asset transferred" but also "its proceeds,") to instead allow
the creditor to obtain the same remedies with respect to the
asset transferred or "other property of the transferee"
instead.
3) Revises existing law, which authorizes creditors to seek a
remedy by way of an attachment or other provisional remedy
against the asset transferred or its proceeds in accordance
with certain attachment procedures specified in the Code of
Civil Procedure, to provide that a creditor may also obtain
an attachment or other provisional remedies that may
otherwise be available under applicable law.
4) Revises existing law, which provides that a transfer or an
obligation is not voidable under that provision if against a
person who took in good faith and for a reasonably equivalent
value against any subsequent transferee or oblige, to specify
that such a transfer or obligation is not voidable against a
person that took in good faith and for a reasonably
equivalent value given [to] the debtor.
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5) Makes structural revisions to existing law relating to the
ability of the creditor to recover a judgment (for the value
of the asset transferred, as adjusted as specified, or the
amount necessary to satisfy the creditor's claim, whichever
is less) and relating to the transferees against whom a
judgment may be entered against, and revises these provisions
to provide that the judgment may be entered against:
(Consistent with existing law) the first transferee of
the asset or the person for whose benefit the transfer was
made; or
An immediate or mediate transferee of the first
transferee other than:
o A good faith transferee that took for value or
o An immediate or mediate good-faith transferee of a
person described above.
1) Adds a provision that would similarly limit recovery in
claims brought pursuant to other specified sections against
such persons described above.
2) Provides that in proving certain matters under existing law,
the following burdens of proof apply:
A party that seeks to invoke: (1) the defense
available to a good faith transferee that provided
reasonably equivalent value; (2) the right of a transferee
who took in good faith for value subject to a lien on the
asset, to enforce the obligation and reduce the amount of
the judgment; or (3) the defense of a transfer resulting
from termination of lease or enforcement of a security
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interest under Article 9 of the Uniform Commercial Code,
has the burden of proving the applicability of those
provisions.
The creditor has the burden of proving each applicable
element of the sections allowing (1) recovery against the
initial transferee or immediate or mediate transferees
(with exceptions), or (2) recovery of or from the asset
transferred or its proceeds, by levy or otherwise, as
specified, except that:
o The transferee has the burden of proving that the
transferee is a good faith transferee that took for good
value or is a good faith transferee of such a
transferee; and
o The party that seeks adjustment to the amount of
the judgment beyond the value of the asset transferred,
as specified, has the burden of proving the adjustment.
1) Specifies that the relevant standard of proof to establish
matters referred to above is preponderance of the evidence.
2) Renumbers certain provisions and adds a new section to the
UVTA to specify that the governing law for a claim "in the
nature of" a claim under the UVTA is the local law of the
jurisdiction in which the debtor is located, as specified,
when the transfer is made or the obligation is incurred.
Specifies that a debtor's location would be based upon
whether the debtor is an individual (would be located at the
individual's principal residence); an organization with only
one place of business (would be located at its place of
business); and an organization with more than once place of
business (would be located at its chief executive office).
3) Limits the applicability of the changes made to the UFTA by
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this bill to a right of action that accrued, transfer made,
or obligation incurred, on or after the effective date of
this bill.
4) Updates the provision limiting the applicability of changes
made to the act that preceded the UFTA in 1986 to clarify
that those 1986 changes apply only to transfers or
obligations incurred before the effective date of the UVTA
and on or after January 1, 1987.
5) Repeals a provision which requires that the provisions of
the UFTA, insofar as they are substantially the same as
specified provisions that were repealed by the 1986
legislation (SB 2150, Beverly, Chapter 383, Statutes of 1986)
implementing the UFTA, be construed as restatements and
continuations and not as new enactments.
6) Adds a provision that would provide that the provisions of
the UVTA, insofar as they are substantially the same as the
provisions of the UFTA in effect on December 31, 2015, shall
be construed as restatements and continuations, not as new
enactments.
7) Specifies that the date a transfer was made or obligation
incurred is to be determined in accordance with existing
provisions.
8) Repeals codified legislative intent language.
9) Makes other technical, non-substantive changes.
Background
Generally, ownership implies that the owner can sell, give,
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abandon, or pledge the owned property to secure a debt. That
being said, a creditor-debtor relationship can alter an owner's
power over the property owned. For example, when a property is
mortgaged, the creditor has legally protected rights in the
property securing the debt, thereby restricting what the owner
can do with the mortgaged property. Under Article 9 of the
Uniform Commercial Code, secured creditors also obtain protected
rights in collateral that are protected. Unsecured
creditor-debtor relationships necessarily raise questions as to
a creditor's rights and remedies when the debtor manipulates
property to defeat the creditor's potential interest in that
property. For example, what rights or remedies does a creditor
have when the debtor foresees insolvency or never even intends
to satisfy the debt and attempts to conceal property that the
creditor might otherwise use to satisfy the debt owed? Can the
creditor ever reach the property after it has been transferred
or given to another person? (See Uniform Law Commission (ULC),
Legislative Fact Sheet, Fraudulent Transfer Act- now known as
Voidable Transactions Act Summary
Page 10
Sec. 3439 et seq. for text of UFTA.)
Last year, NCCUSL proposed new amendments to strengthen rights
and remedies under the UFTA by addressing "a small number of
narrowly-defined issues." The updates include retitling the
UFTA to the UVTA, in part to reduce misconceptions that the law
requires proof of fraudulent intent. (ULC, Voidable
Transactions Act Amendments (2014) -Formerly Fraudulent Transfer
Act
Page 11
California Commission on Uniform State Laws (source)
OPPOSITION: (Verified4/23/15)
None received
Prepared by:Ronak Daylami / JUD. / (916) 651-4113
4/24/15 15:45:00
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