New York Adopts the Uniform Voidable Transactions Act
December 20, 2019
On December 6, 2019, New York Governor Andrew Cuomo signed into law the Uniform Voidable Transactions Act (“UVTA”), which will modernize New York’s 90-year old fraudulent conveyance law and align it more closely to the U.S. Bankruptcy Code and the law of at least 44 other states. The UVTA is a critical component of state debtor-creditor law and addresses the rights and remedies of parties who have engaged in transactions with financially distressed parties. The UVTA will take effect in New York on April 4, 2020 and will apply to transactions consummated on or after that date.
New York first adopted its fraudulent conveyance law, the Uniform Fraudulent Conveyance Act (“UFCA”), Article 10 (§§ 270-281) of the New York Debtor and Creditor Law, in 1925 and has not significantly updated the legislation since. In 1984, the Uniform Law Commissioners, a state-supported organization that promotes the uniformity of state laws, promulgated the Uniform Fraudulent Transfer Act (“UFTA”) to modernize the UFCA and incorporated many of the fraudulent transfer provisions of the Bankruptcy Code. A significant number of states, as well as District of Columbia and the Virgin Islands, adopted the UFTA, although New York did not. In July 2014, the Uniform Law Commissioners revised several targeted provisions of the UFTA and renamed it the Uniform Voidable Transactions Act to capture the broader range of transactions that the UVTA covers (“voidable” transactions include, but are not limited to, “fraudulent” transactions).
The UFCA, UFTA, UVTA, and the relevant provisions of the Bankruptcy Code are generally similar. The universal purpose of the fraudulent conveyance/voidable transfer law is to provide remedies to creditors injured by a transfer of property or an incurrence of an obligation that is (i) intentionally fraudulent, because it was transferred or incurred with actual intent to hinder, delay, or defraud creditors; or (ii) constructively fraudulent, because the transfer or incurrence was in exchange for less than reasonably equivalent value, and was made by a financially distressed debtor/transferor. The adoption of the UVTA in New York will help maintain consistency and predictability across the many states that have adopted the UVTA (and/or its predecessor, the UFTA). It will also impact the powers of a bankruptcy trustee or debtor-in-possession in cases under the Bankruptcy Code, as these entities are endowed with the same avoidance powers as creditors under state law. For those creditors, debtors, transferees and litigators familiar with the current New York law, there are some key differences to note, which we highlight below.
Key Changes under the New York UVTA
|Provision/Issue||UFCA (prior law)||UVTA (law as of April 2020)|
|Statute of Limitations||6 years for a creditor to challenge an allegedly voidable transaction or, if later, 2 years from the discovery of an intentionally fraudulent transaction.||4 years for a creditor to challenge an allegedly voidable transaction or, if later, 1 year from the discovery of an intentionally fraudulent transaction.|
|Choice of Law||A common law multi-factor test, which led to increased costs and unpredictable results.||The law of the place where the debtor or transferor is located when the transaction was made. An individual is located at its domicile, while an organization is located at its principal place of business (and if it has more than one principal place of business, at its chief executive office).|
|Pleading Standards||“Clear and convincing” proof, which is the standard that applies to common-law fraud.||A “preponderance of evidence,” generally allocated on each element of the claim to the plaintiff and on each element of an affirmative defense to the defendant.|
|Transferee’s Intent in Constructively Fraudulent Transactions||A transferee’s intent was relevant in determining whether a transfer was voidable. When considering if a transfer was made for “fair consideration,” the UFCA required that the exchange be proportionate in value and made in good faith.||A transferee’s intent is irrelevant when determining if the transaction is voidable. Instead, the transferee’s “good faith” is only relevant when asserting an affirmative defense to a claim of voidable transfer.|
|Insider Preferences||There was no statutory predicate, but case law permitted avoidance of a payment to an insider on an antecedent debt only on the vague basis that it was not made in “good faith,” potentially allowing a claw back even if the transferor was not insolvent when making the payment.||Provides for the avoidance of debt repayments made within one year to an insider by an insolvent debtor if the insider had reasonable cause to believe that the debtor was insolvent at that time.|
Adoption of the UVTA brings New York voidable transfer law in line with most other U.S. jurisdictions. If you have any questions regarding the New York UVTA, or any other bankruptcy-related litigation, please do not hesitate to contact any member of our Corporate Restructuring and Bankruptcy Practice.