The Uniform Voidable Transactions Act: Will New Hampshire be the Next State to Enact?

This article, written by attorneys Christopher Candon and Jennifer Tamkin, was originally published by the NH Bar News and can be found here (p22).

The Uniform Fraudulent Transfer Act (UFTA), adopted in New Hampshire in 1988, is codified as RSA 545-A. The purpose of the UFTA is to protect creditors against debtors that improperly transfer assets to shelter and/or avoid paying their debts. In 2014, the Uniform Law Commission amended UFTA for the first time since 1984, turning it into the Uniform Voidable Transactions Act (UVTA), to modernize and bring uniformity in responding to transfers or transactions involving debtors’ assets.

A growing number of states are moving to the UVTA, and New Hampshire might be next. As of the date of this article, 24 states have enacted the UVTA into their state law. Two states, including Massachusetts, have introduced it. The title alone provides clarity, as fraud has never been a necessary element for a claim under the UFTA, and the term “transactions” is more appropriate as both Acts apply to the incurrence of obligations in addition to transfers of property.

Similarities

The UFTA and UVTA have the same analytical structure. Transfers made with intent to hinder, delay, or defraud creditors are actual fraud, whereas transfers made or obligations incurred without reasonably equivalent value while the debtor was insolvent or became insolvent as a result are so-called “constructive fraud.” Both forms of “fraud” violate the provisions of both Acts. The badges of fraud that determine intent for actual fraud remain the same as have been used in the UFTA and in common law.

Remedies remain functionally similar: avoidance of the transfer or obligation, attachment or other provisional remedy against the asset transferred or other property of the transferee if available under the applicable law, and, subject to principles of equity and the applicable rules of civil procedure, an injunction against further disposition of the asset transferred or other property, an appointment of a receiver, or “any other relief the circumstances may require.” However, the UVTA has made important amendments that counsel to both debtors and creditors must be aware of.

From Fraudulent Transfers to Voidable Transactions

What appears to be a mere shift in terminology could make real changes to litigation. Not all transfers are fraudulent in its traditional definition, and instead the term “voidable transaction” clarifies what is impermissible under the UVTA. This is an important change, as fraud in the common law sense requires a heightened pleading requirement under state law, where a “voidable transaction” would not. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake, often known as 9(b) scrutiny.

For now, there remains ambiguity in New Hampshire. As long as RSA 545-A remains unchanged, it may be important to clarify that no fraudulent intent or misrepresentation is required for constructive fraud, and thus Rule 9(b) scrutiny would not apply.

Burden of Proof

The UVTA clarifies the burden of proof as preponderance of the evidence for all claims and defenses under it. The UFTA’s ambiguity has allowed some courts to apply clear and convincing standards in “actual fraud” cases due to the word “fraudulent,” even when such a standard may not apply to the civil context of “fraud.” Most New Hampshire cases have applied a preponderance standard, but the difference in clarity must be noted.

Choice of Law and Jurisdiction Provisions

The UVTA adds choice-of-law rules, which the UFTA does not have. Under the UVTA, the law governing a voidable transaction claim is the law of the jurisdiction where the debtor is located at the time of the transfer or transaction. With the modern era’s interstate and international environment, this is much needed clarification.

The UFTA follows common law choice-of-law doctrines, which can be difficult to parse through in multi-jurisdictional disputes, especially those involving digital assets. As long as the UFTA remains good law, New Hampshire practitioners must be aware of such uncertainty both in litigation and the transactional field.

Defenses

Section 4(a)(1) of the UVTA states that “a transfer made or obligation incurred by a debtor is 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 with actual intent to hinder, delay, or defraud any creditor of the debtor.” However, such a transaction is not voidable under the UVTA as to a good faith-transferee who took the transfer or incurred the obligation for a reasonably equivalent value.

Practical Implications for New Hampshire and the Bankruptcy Code

New Hampshire has a business-friendly legal climate and trust code, making it a common venue for asset protection planning and creditor disputes. Should New Hampshire not adopt UVTA, friction may arise in matters involving multi-jurisdictional transfers with some jurisdictions applying UVTA, particularly when it comes to choice of law. And while the UFTA and Section 548 of the Bankruptcy Code serve similar purposes, the UVTA aligns more closely with bankruptcy law, providing more uniform application in and out of bankruptcy proceedings.

Whether New Hampshire chooses to adopt the UVTA will have important implications for the future of voidable transactions when New Hampshire law applies.