2017 -- S 0838

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LC002433

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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: Senators Archambault, Lombardo, Quezada, Ciccone, and Lombardi

     Date Introduced: April 27, 2017

     Referred To: Senate Judiciary

     It is enacted by the General Assembly as follows:

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

Transfer Act" is hereby amended to read as follows:

CHAPTER 6-16

Uniform Fraudulent Transfer Act

CHAPTER 6-16

UNIFORM VOIDABLE TRANSACTIONS ACT

     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,

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

Act" are hereby amended to read as follows:

     6-16-1. Definitions.

     As used in this chapter:

     (1) "Affiliate" means:

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

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

holds the securities:

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

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

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

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

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

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

securities :

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

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

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

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

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

controls substantially all of the debtor's assets.

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

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

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

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

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

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

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

equitable, secured, or unsecured.

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

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

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

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

wireless, optical, electromagnetic, or similar capabilities.

     (7)(8) "Insider" includes:

     (i) If the debtor is an individual:

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

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

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

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

     (ii) If the debtor is a corporation:

     (A) A director of the debtor;

     (B) An officer of the debtor;

     (C) A person in control of the debtor;

     (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

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

     (iii) If the debtor is a partnership:

     (A) A general partner in the debtor;

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

debtor;

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

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

     (E) A person in control of the debtor;

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

     (v) A managing agent of the debtor.

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

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

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

statutory lien.

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

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

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

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

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

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

protection corporation.

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

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

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

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

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

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

degree.

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

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

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

process.

     (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

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

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

subsequently obtained by legal or equitable process or proceedings.

     6-16-2. Insolvency.

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

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

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

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

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

nonexistence of insolvency is more probable than its existence.

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

greater than the aggregate, at a fair valuation, of all of 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.

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

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

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

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

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

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

as to present and future creditors.

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

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

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

obligation, and the debtor:

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

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

or

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

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

     (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:

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

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

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

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

threatened with suit;

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

     (6) The debtor absconded;

     (7) The debtor removed or concealed assets;

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

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

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

the obligation was incurred;

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

and

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

the assets to an insider of the debtor.

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

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

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

voidable as to present creditors.

     (a) A transfer made or obligation incurred by a debtor is fraudulent voidable 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 that time or the

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

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

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

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

was insolvent.

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

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

of the evidence.

     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

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

governor dated January 1, 1991 - Remedies.

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

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

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

obligation involved either:

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

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

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

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

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

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

in the financial institution;

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

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

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

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

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

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

any depository account in the financial institution; or

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

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

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

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

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

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

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

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

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

any assets of the financial institution were encumbered.

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

     For the purposes of this chapter:

     (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

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

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

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

interest of the transferee; and

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

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

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

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

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

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

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

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

transferee;

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

     (5) An obligation is incurred:

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

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

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

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

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

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

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

claim;

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

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

prescribed by applicable statutes and rules of procedure;

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

civil procedure:

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

asset transferred or of other property;

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

of the transferee; or

     (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

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

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

protection of transferee or obligee.

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

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

subsequent transferee or obligee.

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

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

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

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

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

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

made; or

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

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

than:

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

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

(A) of this section.

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

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

(ii) of this section.

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

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

subject to adjustment as the equities may require.

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

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

obligation, is entitled to:

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

     (2) Enforcement of any an obligation incurred; or

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

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

     (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

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

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

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

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

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

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

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

insider; or

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

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

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

section:

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

applicability of that subsection.

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

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

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

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

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

proving the adjustment.

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

preponderance of the evidence.

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

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

this chapter is extinguished unless action is brought:

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

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

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

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

transfer was made or the obligation was incurred; or

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

obligation was incurred.

     6-16-12. Short title.

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

Transactions Act".

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

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

     6-16-13. Governing law.

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

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

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

place of business.

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

its chief executive office.

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

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

obligation is incurred.

     6-16-14. Application to series organization.

     (a) As used in this section:

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

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

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

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

is organized, has the following characteristics:

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

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

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

of or associated with the protected series.

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

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

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

protected series of the organization.

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

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

associated with a protected series of the organization.

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

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.

     6-16-15. Supplementary provisions.

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

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

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

supplement its provisions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

***

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

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

statute.

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

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

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

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

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

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

other general laws of this state.

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