California recently enacted the Uniform Voidable Transactions Act (UVTA) governing the law of fraudulent transfers, and supplanting the previous Uniform Fraudulent Transfer Act (UFTA). The UVTA is based on the model act adopted in 2014 by the National Conference of Commissioners on Uniform State Laws. The UVTA revisions are designed to align with 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 addresses inconsistencies in the law relating to the evidentiary requirements for determining fraud. Since a constructively fraudulent transfer does not actually constitute fraud or improper intent, the UVTA eliminates the word “fraud” and replaces it with “voidable.” The UVTA indicates the standard of proof for a voidable transaction. Specifically, it lowers the burden of proof from authorizing a claim to be established by “clear and convincing” evidence to requiring proof by a “preponderance of the evidence.” The UVTA also modifies the presumption of a debtor’s insolvency upon failure to pay debts as they become due to exclude those debts resulting from a bona fide dispute. Under the UVTA, failure to satisfy liabilities is not conclusive evidence of insolvency, which conforms to the provisions of the Bankruptcy Code. Moreover, the party against which the presumption is directed bears the burden to show the nonexistence of insolvency is more probable than its existence, as required under the Uniform Rules of Evidence.

The UVTA amends the choice of law provisions of the UFTA by creating a presumptive rule that conforms to Article 9 of the UCC. The new rule provides that the governing law in a dispute is the law of the debtor’s residence at the time that the transfer occurred. For individual debtors, the choice of law 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 modification of this provision would eliminate vigorous disputes that arise due to the significant variations in the substance of fraudulent transfer laws across the states.

When you need an experienced lawyer for business and commercial litigation, contact Shane Coons at 949-333-0900 or visit his website, www.ShaneCoonsLaw.com, to learn more about his practice or schedule a consultation.