2017 -- H 6123

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LC002432

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2017

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A N   A C T

RELATING TO COMMERCIAL LAW - GENERAL REGULATORY PROVISIONS -

UNIFORM FRAUDULENT TRANSFER ACT

     

     Introduced By: Representatives Keable, Marshall, Amore, Knight, and Hearn

     Date Introduced: April 14, 2017

     Referred To: House Corporations

     It is enacted by the General Assembly as follows:

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     SECTION 1. The title of Chapter 6-16 of the General Laws entitled "Uniform Fraudulent

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Transfer Act" is hereby amended to read as follows:

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CHAPTER 6-16

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Uniform Fraudulent Transfer Act

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CHAPTER 6-16

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UNIFORM VOIDABLE TRANSACTIONS ACT

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     SECTION 2. Sections 6-16-1, 6-16-2, 6-16-4, 6-16-5, 6-16-5.1, 6-16-6, 6-16-7, 6-16-8,

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6-16-9 and 6-16-12 of the General Laws in Chapter 6-16 entitled "Uniform Fraudulent Transfer

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Act" are hereby amended to read as follows:

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     6-16-1. Definitions.

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     As used in this chapter:

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     (1) "Affiliate" means:

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     (i) A person who directly or indirectly owns, controls, or holds with power to vote twenty

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percent (20%) or more of the outstanding voting securities of the debtor, other than a person who

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holds the securities:

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     (A) As a fiduciary or agent without sole discretionary power to vote the securities; or

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     (B) Solely to secure a debt, if the person has not exercised the power to vote;

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     (ii) A corporation, twenty percent (20%) or more of whose outstanding voting securities

 

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are directly or indirectly owned, controlled, or held with power to vote by the debtor or a person

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who directly or indirectly owns, controls, or holds, with power to vote, twenty percent (20%) or

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more of the outstanding voting securities of the debtor, other than a person who holds the

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securities :

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     (A) As a fiduciary or agent without sole power to vote the securities; or

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     (B) Solely to secure a debt, if the person has not in fact exercised the power to vote;

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     (iii) A person whose business is operated by the debtor under a lease or other agreement,

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or a person substantially all of whose assets are controlled by the debtor; or

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     (iv) A person who operates the debtor's business under a lease or other agreement or

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controls substantially all of the debtor's assets.

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     (2) "Asset" means property of a debtor, but the term does not include:

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     (i) Property to the extent it is encumbered by a valid lien;

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     (ii) Property to the extent it is generally exempt under nonbankruptcy law; or

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     (iii) An interest in property held in tenancy by the entireties to the extent it is not subject

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to process by a creditor holding a claim against only one tenant.

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     (3) "Claim" means a right to payment, whether or not the right is reduced to judgment,

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liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,

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equitable, secured, or unsecured.

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     (4) "Creditor" means a person who has a claim.

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     (5) "Debt" means liability on a claim.

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     (6) "Debtor" means a person who is liable on a claim.

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     (7) "Electronic" means relating to technology having electrical, digital, magnetic,

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wireless, optical, electromagnetic, or similar capabilities.

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     (7)(8) "Insider" includes:

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     (i) If the debtor is an individual:

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     (A) A relative of the debtor or of a general partner of the debtor;

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     (B) A partnership in which the debtor is a general partner;

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     (C) A general partner in a partnership described in subdivision (7)(i)(B); or

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     (D) A corporation of which the debtor is a director, officer, or person in control;

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     (ii) If the debtor is a corporation:

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     (A) A director of the debtor;

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     (B) An officer of the debtor;

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     (C) A person in control of the debtor;

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     (D) A partnership in which the debtor is a general partner;

 

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     (E) A general partner in a partnership described in subdivision (7)(ii)(D); or

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     (F) A relative of a general partner, director, officer, or person in control of the debtor.

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     (iii) If the debtor is a partnership:

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     (A) A general partner in the debtor;

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     (B) A relative of a general partner in, a general partner of, or a person in control of the

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debtor;

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     (C) Another partnership in which the debtor is a general partner;

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     (D) A general partner in a partnership described in subdivision (7)(iii)(C); or

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     (E) A person in control of the debtor;

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     (iv) An affiliate, or an insider of an affiliate as if the affiliate were the debtor; and

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     (v) A managing agent of the debtor.

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     (8)(9) "Lien" means a charge against, or an interest in, property to secure payment of a

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debt or performance of an obligation, and includes a security interest created by agreement; a

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judicial lien obtained by legal or equitable process or proceedings; a common-law lien; or a

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statutory lien.

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     (10) "Organization" means a person other than an individual.

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     (9)(11) "Person" means an individual, estate, partnership, association, trust, business or

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nonprofit entity, public corporation, government or governmental subdivision, agency, or

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instrumentality, or other legal or commercial entity. partnership, corporation, association,

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organization, government or governmental subdivision or agency, business trust, estate, trust, or

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any other legal or commercial entity, but does include the Rhode Island depositors economic

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protection corporation.

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     (10)(12) "Property" means anything that may be the subject of ownership.

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     (13) "Record" means information that is inscribed on a tangible medium or that is stored

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in an electronic or other medium, and retrievable in perceivable form.

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     (11)(14) "Relative" means an individual related by consanguinity within the third degree

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as determined by the common law, a spouse, or an individual related to a spouse within the third

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degree as so determined, and includes an individual in an adoptive relationship within the third

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degree.

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     (15) "Sign" means with present intent to authenticate or adopt a record:

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     (i) To execute or adopt a tangible symbol; or

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     (ii) To attach to or logically associate with the record an electronic symbol, sound, or

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process.

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     (12)(16) "Transfer" means every mode, direct or indirect, absolute or conditional,

 

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voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and

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includes payment of money, release, lease, license, and creation of a lien or other encumbrance.

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     (13)(17) "Valid lien" means a lien that is effective against the holder of a judicial lien

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subsequently obtained by legal or equitable process or proceedings.

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     6-16-2. Insolvency.

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     (a) A debtor is insolvent if, at a fair valuation, the sum of the debtor's debts is greater than

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the sum of the debtor's assets all of the debtor's assets at a fair valuation.

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     (b) A debtor who is generally not paying his or her the debtor's debts as they become due

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other than as a result of a bona fide dispute is presumed to be insolvent. The presumption imposes

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on the party against whom the presumption is directed the burden of proving that the

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nonexistence of insolvency is more probable than its existence.

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     (c) A partnership is insolvent under subsection (a) if the sum of the partnership's debts is

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greater than the aggregate, at a fair valuation, of all of the partnership's assets and the sum of the

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excess of the value of each general partner's nonpartnership assets over the partner's

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nonpartnership debts.

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     (d)(c) Assets under this section do not include property that has been transferred,

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concealed, or removed with intent to hinder, delay, or defraud creditors or that have been

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transferred in a manner making the transfer voidable under this chapter.

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     (e)(d) Debts under this section do not include obligations to the extent they are secured

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by a valid lien on property of the debtor not included as an asset.

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     6-16-4. Transfers fraudulent as to present and future creditors. Transfers voidable

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as to present and future creditors.

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     (a) A transfer made or obligation incurred by a debtor is fraudulent voidable as to a

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creditor, whether the creditor's claim arose before or after the transfer was made or the obligation

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was incurred, if the debtor made the transfer or incurred the obligation:

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     (1) With actual intent to hinder, delay, or defraud any creditor of the debtor; or

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     (2) Without receiving a reasonably equivalent value in exchange for the transfer or

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obligation, and the debtor:

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     (i) Was engaged or was about to engage in a business or a transaction for which the

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remaining assets of the debtor were unreasonably small in relation to the business or transaction;

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or

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     (ii) Intended to incur, or believed or reasonably should have believed that he or she the

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debtor would incur, debts beyond his or her the debtor's ability to pay as they became due.

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     (b) In determining actual intent under subsection (a) (1) of this section, consideration may

 

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be given, among other factors, to whether:

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     (1) The transfer or obligation was to an insider;

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     (2) The debtor retained possession or control of the property transferred after the transfer;

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     (3) The transfer or obligation was disclosed or concealed;

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     (4) Before the transfer was made or obligation was incurred, the debtor had been sued or

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threatened with suit;

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     (5) The transfer was of substantially all the debtor's assets;

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     (6) The debtor absconded;

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     (7) The debtor removed or concealed assets;

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     (8) The value of the consideration received by the debtor was reasonably equivalent to

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the value of the asset transferred or the amount of the obligation incurred;

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     (9) The debtor was insolvent or became insolvent shortly after the transfer was made or

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the obligation was incurred;

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     (10) The transfer occurred shortly before or shortly after a substantial debt was incurred;

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and

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     (11) The debtor transferred the essential assets of the business to a lienor who transferred

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the assets to an insider of the debtor.

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     (c) A creditor making a claim for relief under subsection (a) of this section has the burden

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of proving the elements of the claim for relief by a preponderance of the evidence.

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     6-16-5. Transfers fraudulent as to present creditors. Transfers or obligations

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voidable as to present creditors.

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     (a) A transfer made or obligation incurred by a debtor is fraudulent voidable as to a

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creditor whose claim arose before the transfer was made or the obligation was incurred if the

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debtor made the transfer or incurred the obligation without receiving a reasonably equivalent

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value in exchange for the transfer or obligation and the debtor was insolvent at that time or the

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debtor became insolvent as a result of the transfer or obligation.

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     (b) A transfer made by a debtor is fraudulent voidable as to a creditor whose claim arose

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before the transfer was made if the transfer was made to an insider for an antecedent debt; the

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debtor was insolvent at that time; and the insider had reasonable cause to believe that the debtor

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was insolvent.

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     (c) Subject to §16-16-2(b), a creditor making a claim for relief under subsection (a) or (b)

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of this section has the burden of proving the elements of the claim for relief by a preponderance

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of the evidence.

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     6-16-5.1. Transfers fraudulent as to depository creditors of financial institutions

 

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closed by proclamation of the governor dated January 1, 1991 -- Remedies. Transfers

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voidable as to depository creditors of financial institutions closed by proclamation of the

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governor dated January 1, 1991 - Remedies.

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     (a) A transfer made or obligation incurred by any financial institution closed by

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proclamation of the governor dated January 1, 1991, is fraudulent voidable as to any depository

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creditor of record of any such financial institution as of January 1, 1991, if the transfer or

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obligation involved either:

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     (1) The withdrawal of deposits from the financial institution by any officer, director, or

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employee of the financial institution or of the Rhode Island share and deposit indemnity

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corporation, with knowledge of the actual or impending insolvency and/or the impending closing

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of the financial institution or of the actual or impending insolvency of and/or the actual or

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impending cessation of business by the Rhode Island share and deposit indemnity corporation,

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and for the purpose of avoiding the loss of funds and/or access to funds in any depository account

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in the financial institution;

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     (2) The encumbrance of any assets of the financial institution to or for the benefit of any

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officer, director, or employee of the financial institution or of the Rhode Island share and deposit

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indemnity corporation, with knowledge of the actual or impending insolvency and/or the

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impending closing of the financial institution or of the actual or impending insolvency of and/or

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the actual and/or impending cessation of business by the Rhode Island share and deposit

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indemnity corporation, and for the purpose of avoiding the loss of funds and/or access to funds in

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any depository account in the financial institution; or

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     (3) A transfer or obligation defined as fraudulent voidable under §§ 6-16-4 or 6-16-5.

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     (b) In addition to any remedies provided by § 6-16-7, (1) any financial institution closed

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by proclamation of the governor dated January 1, 1991; (2) any assignees of and successors in

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interest to any such financial institution; and (3) any depository creditor of record of any such

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financial institution as of January 1, 1991, who suffers monetary loss as a result of a transfer or

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conveyance defined as fraudulent voidable under this section or who is otherwise aggrieved by

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the transfer or conveyance, shall have a private cause of action at law and in equity against any

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officer, director, or employee of the financial institution or of the Rhode Island share and deposit

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indemnity corporation to whom the subject transfer was made or to whom or for whose benefit

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any assets of the financial institution were encumbered.

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     6-16-6. When transfer is made or obligation is incurred.

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     For the purposes of this chapter:

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     (1) A transfer is made:

 

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     (i) With respect to an asset that is real property other than a fixture, but including the

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interest of a seller or purchaser under a contract for the sale of the asset, when the transfer is so

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far perfected that a good-faith purchaser of the asset from the debtor against whom applicable law

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permits the transfer to be perfected cannot acquire an interest in the asset that is superior to the

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interest of the transferee; and

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     (ii) With respect to an asset that is not real property or that is a fixture, when the transfer

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is so far perfected that a creditor on a simple contract cannot acquire a judicial lien otherwise than

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under this chapter that is superior to the interest of the transferee;

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     (2) If applicable law permits the transfer to be perfected as provided in subdivision (1)

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and the transfer is not so perfected before the commencement of an action for relief under this

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chapter, the transfer is deemed made immediately before the commencement of the action;

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     (3) If applicable law does not permit the transfer to be perfected as provided in

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subdivision (1), the transfer is made when it becomes effective between the debtor and the

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transferee;

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     (4) A transfer is not made until the debtor has acquired rights in the asset transferred;

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     (5) An obligation is incurred:

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     (i) If oral, when it becomes effective between the parties; or

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     (ii) If evidenced by a writing record, when the writing executed record signed by the

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obligor is delivered to or for the benefit of the obligee.

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     6-16-7. Remedies of creditors. Remedies of creditor.

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     (a) In an action for relief against a transfer or obligation under this chapter, a creditor,

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subject to the limitations in § 6-16-8, may obtain:

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     (1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's

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claim;

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     (2) An attachment or other provisional remedy against the asset transferred or other

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property of the transferee available under applicable law; and in accordance with the procedure

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prescribed by applicable statutes and rules of procedure;

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     (3) Subject to applicable principles of equity and in accordance with applicable rules of

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civil procedure:

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     (i) An injunction against further disposition by the debtor or a transferee, or both, of the

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asset transferred or of other property;

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     (ii) Appointment of a receiver to take charge of the asset transferred or of other property

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of the transferee; or

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     (iii) Any other relief the circumstances may require.

 

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     (b) If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the

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court so orders, may levy execution on the asset transferred or its proceeds.

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     6-16-8. Defenses, liability, and protection of transferee. Defenses, liability, and

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protection of transferee or obligee.

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     (a) A transfer or obligation is not voidable under § 6-16-4(a)(1) against a person who

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took in good faith and for a reasonably equivalent value given the debtor or against any

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subsequent transferee or obligee.

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     (b) Except as otherwise provided in this section, to To the extent a transfer is voidable in

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an action by a creditor under § 6-16-7(a)(1), the following rules apply:

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     (1) Except as otherwise provided in this section, the creditor may recover judgment for

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the value of the asset transferred, as adjusted under subsection (c) of this section, or the amount

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necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against:

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     (1)(i) The first transferee of the asset or the person for whose benefit the transfer was

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made; or

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     (2)(ii) Any subsequent transferee other than a good faith transferee who took for value or

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from any subsequent transferee. An immediate or mediate transferee of the first transferee, other

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than:

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     (A) A good-faith transferee that took for value; or

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     (B) An immediate or mediate good-faith transferee of a person described in subsection

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(A) of this section.

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     (2) Recovery pursuant to §§6-16-7(a)(1) or (b) or from the asset transferred or its

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proceeds, by levy or otherwise, is available only against a person described in subsection (1)(i) or

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(ii) of this section.

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     (c) If the judgment under subsection (b) is based upon the value of the asset transferred,

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the judgment must be for an amount equal to the value of the asset at the time of the transfer,

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subject to adjustment as the equities may require.

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     (d) Notwithstanding voidability of a transfer or an obligation under this chapter, a good

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faith transferee or obligee, to the extent of the value given the debtor for the transfer or

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obligation, is entitled to:

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     (1) A lien on or a right to retain any an interest in the asset transferred;

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     (2) Enforcement of any an obligation incurred; or

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     (3) A reduction in the amount of the liability on the judgment.

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     (e) A transfer is not voidable under § 6-16-4(a)(2) or 6-16-5 if the transfer results from:

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     (1) Termination of a lease upon default by the debtor when the termination is pursuant to

 

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the lease and applicable law; or

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     (2) Enforcement of a security interest in compliance with chapter 9 of title 6A of the

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Uniform Commercial Code. Article 9 of the Uniform Commercial Code, other than acceptance of

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collateral in full or partial satisfaction of the obligation it secures.

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     (f) A transfer is not voidable under § 6-16-5(b):

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     (1) To the extent the insider gave new value to or for the benefit of the debtor after the

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transfer was made unless except to the extent the new value was secured by a valid lien;

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     (2) If made in the ordinary course of business or financial affairs of the debtor and the

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insider; or

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     (3) If made pursuant to a good faith effort to rehabilitate the debtor and the transfer

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secured present value given for that purpose as well as an antecedent debt of the debtor.

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

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section:

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     (1) A party that seeks to invoke §§6-16-8 (a), (d), (e), or (f) has the burden of proving the

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applicability of that subsection.

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     (2) Except as otherwise provided in §§6-16-8(g)(3) and 6-16-8(g)(4), the creditor has the

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burden of proving each applicable element of subsection (b) or (c) of this section.

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     (3) The transferee has the burden of proving the applicability to the transferee of

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subsections (b)(1)(ii)(A) or (B) of this section.

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     (4) A party that seeks adjustment under subsection (c) of this section has the burden of

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proving the adjustment.

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     (h) Proof of matters referred to in this section is sufficient if established by a

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preponderance of the evidence.

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     6-16-9. Extinguishment of cause of action. Extinguishment of claim for relief.

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     A cause of action claim of relief with respect to a fraudulent transfer or obligation under

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this chapter is extinguished unless action is brought:

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     (1) Under § 6-16-4(a)(1) within not later than four (4) years after the transfer was made

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or the obligation was incurred or, if later, within not later than one year after the transfer or

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obligation was or could reasonably have been discovered by the claimant;

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     (2) Under §§ 6-16-4(a)(2) or 6-16-5(a), within not later than four (4) years after the

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transfer was made or the obligation was incurred; or

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     (3) Under § 6-16-5(b) within not later than one year after the transfer was made or the

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obligation was incurred.

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     6-16-12. Short title.

 

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     This chapter may be cited as the "Uniform Fraudulent Transfer Act" "Uniform Voidable

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Transactions Act".

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     SECTION 3. Chapter 6-16 of the General Laws entitled "Uniform Voidable Transactions

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Act" is hereby amended by adding thereto the following sections:

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     6-16-13. Governing law.

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     (a) As used in this section, the following rules determine a debtor's location:

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     (1) A debtor who is an individual is located at the individual's principal residence.

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     (2) A debtor that is an organization and has only one place of business is located at its

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place of business.

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     (3) A debtor that is an organization and has more than one place of business is located at

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its chief executive office.

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     (b) A claim for relief in the nature of a claim for relief under this chapter is governed by

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the local law of the jurisdiction in which the debtor is located when the transfer is made or the

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obligation is incurred.

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     6-16-14. Application to series organization.

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     (a) As used in this section:

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     (1) "Protected series" means an arrangement, however denominated, created by a series

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organization that, pursuant to the law under which the series organization is organized, has the

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characteristics set forth in subsection (a)(2) of this section.

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     (2) "Series organization" means an organization that, pursuant to the law under which it

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is organized, has the following characteristics:

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     (i) The organic record of the organization provides for creation by the organization of one

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or more protected series, however denominated, with respect to specified property of the

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organization, and for records to be maintained for each protected series that identify the property

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of or associated with the protected series.

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     (ii) Debt incurred or existing with respect to the activities of, or property of or associated

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with, a particular protected series is enforceable against the property of or associated with the

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protected series only, and not against the property of or associated with the organization or other

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protected series of the organization.

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     (iii) Debt incurred or existing with respect to the activities or property of the organization

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is enforceable against the property of the organization only, and not against the property of or

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associated with a protected series of the organization.

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     (b) A series organization and each protected series of the organization is a separate

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person for purposes of this chapter, even if for other purposes a protected series is not a person

 

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separate from the organization or other protected series of the organization.

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     6-16-15. Supplementary provisions.

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     Unless displaced by the provisions of this chapter, the principles of law and equity,

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including the law merchant and the law relating to principal and agent, estoppel, laches, fraud,

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misrepresentation, duress, coercion, mistake, insolvency, or other validating or invalidating cause,

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supplement its provisions.

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     6-16-16. Uniformity of application and construction.

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     This chapter shall be applied and construed to effectuate its general purpose to make

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uniform the law with respect to the subject of this chapter among the states enacting it.

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     6-16-17. Relation to electronic signatures in global and national commerce act.

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This chapter modifies, limits, or supercedes the Electronic Signatures in Global and

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National Commerce Act, 15 U.S.C §7001 et seq., but does not modify, limit, or supersede

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§101(c) of that act, 15 U.S.C. §7001(c), or authorize electronic delivery of any of the notices

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described in §103(b) of that act, 15 U.S.C. §7003(b).

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     SECTION 4. This act shall take effect upon passage; provided, that: (1) The amendments

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apply to a transfer made or obligation incurred on or after the effective date of this act; (2) The

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amendments do not apply to a transfer made or obligation incurred before the effective date of

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this act; (3) The amendments do not apply to a right of action that has accrued before the effective

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date of this act; and (4) For the foregoing purposes, a transfer is made and an obligation is

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incurred at the time provided in §6-16-6. In addition, this act revises any reference to this chapter

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by its former title in other general laws of this state.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO COMMERCIAL LAW - GENERAL REGULATORY PROVISIONS -

UNIFORM FRAUDULENT TRANSFER ACT

***

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     This act would amend the "Uniform Fraudulent Transfer Act" to be called the "Uniform

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Voidable Transactions Act", and would also amend the definition of "person" contained in the

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statute.

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     This act would take effect upon passage; provided, that: (1) The amendments apply to a

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transfer made or obligation incurred on or after the effective date of this act; (2) The amendments

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do not apply to a transfer made or obligation incurred before the effective date of this act; (3) The

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amendments do not apply to a right of action that has accrued before the effective date of this act;

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and (4) For the foregoing purposes, a transfer is made and an obligation is incurred at the time

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provided in §6-16-6. In addition, this act revises any reference to this chapter by its former title in

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other general laws of this state.

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LC002432

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LC002432 - Page 12 of 12