California recently enacted the Uniform Voidable Transactions Act (UVTA), which introduces discrete modifications to the previous law governing fraudulent transfers, the Uniform Fraudulent Transfer Act (UFTA). The UFTA provided that a “fraudulent transfer” occurred when a debtor transferred property to a third party with the objective of obstructing or defrauding a creditor, or did not receive equivalent value for that property if the debtor was insolvent. The UFTA furnished a legal means for voiding a fraudulent transfer and returning the property to the debtor or debtor’s estate. The current UVTA revisions accomplish the same goals and are designed to conform to provisions of the Bankruptcy Code, the Uniform Commercial Code (UCC) and the Uniform Rules of Evidence, thereby promoting consistency and reliability in secured lending transactions.

The UVTA amendments clarify several inconsistencies in the UFTA. One amendment addresses the evidentiary requirements for determining fraud. The actual establishment of “fraud” in proving that a debtor engaged in a fraudulent transfer is not actually required by law, but various courts have applied the more exacting evidentiary standard necessitated by a showing of “fraud.” The UVTA thus eliminates the word “fraudulent” and expressly provides that the creditor must establish his claim by a preponderance of the evidence, rather than the higher standard required for actual “fraud.”

The UFTA contained the presumption of a debtor’s indebtedness upon failure to pay debts as they become due. Under the UVTA, failure to satisfy liabilities that are the subject of a dispute are not conclusive evidence of insolvency. This principle conforms to the provisions of the Bankruptcy Code. Moreover, the debtor bears the burden of refuting the presumption of insolvency, as stipulated under the Uniform Rules of Evidence.

The UVTA amends the choice of law provisions to conform to Article 9 of the UCC. The new rule provides that the governing law in a potential dispute is the law of the debtor’s residence at the time the dispute occurred. For individual debtors, this is determined by the state in which the person resides, and for businesses, it is governed by the state in which the business operates. The choice of law amendment offers certainty to address the significant discrepancies among states’ statute of limitations and substantive laws.

DeAnn Flores Chase and her team of experienced attorneys can guide you in understanding the requirements under current law. Contact Chase Law Group, P.C. at (310) 545-7700 or visit www.chaselawmb.com to schedule a consultation.