Last month, New York enacted the Uniform Voidable Transactions Act (“UVTA”)[1], which seeks to modernize the state’s fraudulent conveyance law. 

Since its introduction by the Uniform Law Commission in 2014, the UVTA has now been adopted by 21 states.[2]  The UVTA was originally drafted by the Uniform Law Commission as an amendment to the 1984 Uniform Fraudulent Transfer Act (“UFTA”); New York was one of only seven states that did not adopt the original UFTA.[3] 

By enacting the UVTA, New York has now harmonized its fraudulent conveyance law with that of the overwhelming number of jurisdictions in the United States, as well as with the federal Bankruptcy Code.

Among the substantive changes that the UVTA makes to the treatment of fraudulent conveyances—now referred to as “voidable transactions”—under New York law are as follows:

• Reorganization of voidable transactions: The UVTA restructures available claims into two categories of voidable transactions:  1) those voidable as to present and future creditors (Section 273), which includes both transfers made with fraudulent intent or that lack fair consideration (called “reasonably equivalent value” in the UVTA); and 2) those voidable only as to present creditors (Section 274), which includes transfers made without fair consideration (using a different test than in Section 273) and transfers made to insiders under certain circumstances.  While courts applying the prior law had found that transfers to insiders to satisfy antecedent debts could be considered fraudulent conveyances, the UVTA for the first time has codified such claims.
• Removing the “good faith” test for voidable transactions based on a lack of fair consideration: Prior to the UVTA, plaintiffs seeking to challenge a transaction based on a lack of fair consideration had to also prove that the transfer was not made in good faith.  The UVTA has removed this requirement for such claims.[4]
• Shortening the available time to bring a claim: New York courts have applied the statute of limitations for fraud to claims based on fraudulent intent, which is the longer of six years from the transfer or 2 years from when the transfer was or should have been discovered, and a six-year statute of limitations to claims of constructive fraud based on a lack of fair consideration.[5]  The UVTA supersedes these limits with new, shorter statutes of repose:  a claim for relief based on fraudulent intent is extinguished the later of four years after the transfer or one year after the transfer was or could have been discovered by the claimant; a claim based on a lack of fair consideration is extinguished four years after the transfer; and, a claim based on transfers to insiders is extinguished within one year.[6]
• Lowering the burden of proof to a preponderance of evidence for all claims: Federal and state courts in New York have required plaintiffs to prove fraudulent intent with clear and convincing evidence, and some have also required clear and convincing evidence for claims based on a lack of fair consideration.[7]  The UVTA lowers the plaintiff’s burden of proof for all voidable transaction claims to a preponderance of evidence.[8]
• Amending the choice-of-law analysis: In place of New York’s usual multi-factor interest analysis for choice of law issues, the UVTA specifies as the default rule that claims such as those in the UVTA are governed by the law of the jurisdiction in which the debtor was located when the transfer was made or the obligation incurred.[9]

The UVTA represents a substantial change to New York law.  It is not retroactive, and it will apply only to transfers that occur on or after the effective date of the UVTA, which is April 4, 2020.  As a result, the prior law and case law will continue to apply for years to come in connection with transfers that took place prior to April 4, 2020.

[1] https://legislation.nysenate.gov/pdf/bills/2019/A5622

[2] https://www.uniformlaws.org/committees/community-home?CommunityKey=64ee1ccc-a3ae-4a5e-a18f-a5ba8206bf49 (last visited December 31, 2019). 

[3] https://www.uniformlaws.org/committees/community-home?CommunityKey=4226ae7c-91c0-4ce9-b488-8520dbc39ea3 (last visited December 31, 2019). 

[4] See UVTA §§ 273(a)(2); 274(a).

[5] See, e.g., Wall St. Assocs. v. Brodsky, 257 A.D.2d 526, 530 (1st Dep’t 1999).

[6] UVTA § 278.

[7] See Piccarreto v. Mura, 51 Misc. 3d 1230(A) (Sup. Ct. 2016) (collecting cases).

[8] See UVTA §§ 273(c); 274(c).

[9] UVTA § 279(b).