On April 4, 2020, the State of New York will join ranks with the vast majority of other states implementing a version of the Uniform Voidable Transactions Act (the “UVTA”). Only Maryland continues to apply the Uniform Fraudulent Conveyance Act (the “UFCA”), a law with its origins as early as 1918. A handful of other states that did not adopt the UFCA instead retain their varied, state-specific transfer laws. The uniform legislation was first promulgated in 1984 as an amendment to the UFCA, referred to as the Uniform Fraudulent Transfer Act (“UFTA”). It was later modified and renamed in 2014. Since its origins, the UVTA was intended to serve as a uniform state statute, more consistent with Federal bankruptcy law then the UFCA. New York’s new law is codified as a replacement to Article 10 of the Debtor & Creditor Law §§ 270-281 (“NY UVTA”).
Transactions occurring on and after April 4th will be considered under the new law. Perhaps most significantly, the statute of limitations for voidable transfers in New York will be reduced from six years to four years from the date of the transfer. The limitations period was not addressed by the UFCA and those states adopting the statute resorted to other statutes of limitations in their commercial laws. While the UVTA shortens the general limitations period in New York, it is flexible in cases of actual fraud, extending the deadline to a date that is one year after the transfer could reasonably have been discovered. This is an important change, as state conveyance law is most often implicated where the statute of limitations under Section 548 of the Bankruptcy Code has expired. The disparity in state laws has led to forum shopping, and where necessary in favor of states with longer statutes of limitations. But this forum shopping has also led to inconsistency with UFCA states applying standards that differed from the Bankruptcy Code and the majority of other states which applied the UFTA or, more recently, the UVTA. Indeed, it is often a Bankruptcy Court that is asked to apply state law avoidance statutes and confusion may arise where those laws differ from the Bankruptcy Code. For example, when addressing the value of consideration for purposes of constructive fraudulent transfers, New York will now use the Bankruptcy Code’s formulation of “reasonably equivalent value” rather than the dated construction of “fair consideration.” Notably, fair consideration requires an analysis of the transferee’s good faith, including in the context of a constructive, rather than actual, fraudulent conveyance. Under the UVTA, reasonable equivalent value is expressly presumed for interests acquired during a non-collusive foreclosure sale or similar execution of rights following a default. The burden of proof will be eased under the new law, consistent with that in most other states. Rather than a standard of “clear and convincing evidence,” the NY UVTA requires the claimant to prove its case on a “preponderance of the evidence,” whether in the case of constructive or actual fraud. The NY UVTA also eliminates the need to resort to common law to determine the appropriate choice of law. Instead, the new law identifies the proper choice of law as that of the state where the debtor was located at the time of the transfer at issue. A transferor’s location is that of its principal place of business (or, if more than one, its chief executive office).
New York’s version of the UVTA varies only slightly from the uniform law adopted in many other UVTA states. Whereas the uniform law does not address the recovery of successful movant’s attorney fees, New York will allow such recovery in instances of both actual and constructive fraud. Under New York’s version of the UFCA, recovery of attorney’s fees was limited to actual fraud.
Governor Cuomo signed the bill on December 6, 2019, replacing the UFCA which had been in place in New York since 1925. New York is not alone in updating its voidable transfers laws to the UVTA — New Jersey, Massachusetts and South Carolina have each enacted legislation to bring the UVTA to their states. South Carolina’s movement is notable in that it is one of the few state’s that did not adopt the UFTA (the precursor to the UVTA).