Understandably lost in the shuffle amidst the myriad of new laws and regulations resulting from the COVID-19 pandemic is New York's new Uniform Voidable Transactions Act (UVTA). Signed by Governor Andrew Cuomo on December 6, 2019, the UVTA became effective on April 4, 2020, and governs fraudulent transfers made on or after that effective date.
New York's 95-year-old fraudulent conveyance law embodied in Article 10, Sections 270-281 of the Debtor and Creditor Law (NYDCL) has been replaced pursuant to the UVTA with new Sections 270-281. New York has thus finally come into conformity with the substantial majority of states (some 44 in number) that have previously adopted this uniform legislation, which is intended to provide the parties with more certainty and to reduce litigation concerning the interpretation of the NYDCL.
The UVTA makes several significant procedural and substantive changes to the NYDCL, including the following notable changes:
- The prior concept of "fair consideration" has been replaced with the concept of "reasonably equivalent value" in determining whether a fraudulent conveyance (now termed a "voidable transaction") has occurred. (Sections 273(a) and 274)
- The statute of limitations period for challenging a potentially voidable transaction has been shortened from six years to four years. (Section 278)
- The UVTA eliminates a provision of the prior law that allowed a transaction to be avoided as constructively fraudulent if it was received in bad faith, even if the transferee provided equivalent value in exchange. A transferee's intent is now irrelevant when determining if the transaction is voidable.
- The UVTA adds a provision that renders voidable, as to a creditor whose claim arose before the transfer was made, a transfer by a debtor to an "insider" for an antecedent debt (i.e., an exchange of reasonably equivalent value) if the transfer was made while the debtor was insolvent and the insider had reasonable cause to believe that the debtor was insolvent. (Section 274(b)). The reach-back period for a Section 274(b) claim is one year. (Section 278(c))
- Unlike the prior law, the UVTA expressly sets forth various factors (a total of eleven) for the court to consider in determining actual intent. (Section 273(b))
- Under the UVTA, purchases of real property from a "regularly conducted, noncollusive" foreclosure sale or of personal property from a UCC Article 9 sale are considered to be for reasonably equivalent value and are protected from avoidance. (Section 272(b))
- The burden of proof standard for all claims and defenses has been modified from a "clear and convincing evidence" standard to the lower standard of "preponderance of the evidence." (Section 273(c) and 277(h))
- Whereas the prior statute allowed for an award of attorneys' fees only to a party who successfully established that a transfer was intentionally fraudulent, the UVTA provides for attorneys' fees to a party who is successful in setting aside a transaction regardless of whether the transaction was constructively fraudulent or intentionally fraudulent. (Section 276-a)
- A claim for relief under the UVTA is governed by the law of the jurisdiction in which the debtor or transferor was located when the transfer was made, rather than resort to the common law multi-factor test that was previously used to determine choice of law. (Section 279)
With respect to transfers that have taken place prior to the April 4, 2020 effective date of the UVTA, the old Article 10 of the NYDCL will apply, including its six-year clawback period. Among other things, the implementation of the new law should have some interesting implications for certain fraudulent transfer claims, including claims brought by New York bankruptcy trustees in adversary proceedings, in which there are multiple potentially fraudulent transfers, one or more being pre-April 4, 2020, and thus governed by the old law, and one or more others being post-April 4, 2020 and governed by the UVTA.
Now that the UVTA has become effective, it remains to be seen whether one of the stated purposes for implementation of the new statute - the reduction or elimination of protracted litigation concerning the interpretation and applicability of the statute - will become a reality.