Articles Posted in Fraudulent Transfers

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It’s a new year, and we have a new law affecting debtors and creditors in California.  Effective January 1, 2016, California’s Uniform Voidable Transactions Act (UVTA) has replaced California’s Uniform Fraudulent Transfer Act (UFTA). The full text of the new UVTA can be found here.  While the UVTA is similar to the UFTA in most respects, certain important changes and key aspects of the new law are discussed below.

Title of the Act

The title of the Act has been changed to the “Uniform Voidable Transactions Act.”  The use of the word “voidable” rather than “fraudulent” is intended to prevent confusion, since the UVTA (like with the UFTA before it) does not require fraud, in the normal sense of the word, for certain transactions to be voidable.  Also, the use of “transactions” rather than “transfers” is consistent with the law historically covering the incurrence of obligations in addition to transfers of property.

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In a surprise move, the Fifth Circuit vacated its recent, controversial Golf Channel opinion, potentially giving the Golf Channel a second chance in a case that seemed lost.  As I discussed in my previous post, the Fifth Circuit recently held that the Golf Channel had to return over $5.9 million in payments it had received from Ponzi schemer Allen Stanford’s Stanford International Bank, pursuant to a fraudulent transfer action initiated by the bank’s receiver.  The Golf Channel had asserted a “reasonably equivalent value” defense, saying that it had aired advertisements having value reasonably equivalent to the over $5.9 million in payments that the Golf Channel had received.  However, the Fifth Circuit held that this defense does not apply in Ponzi scheme cases, since advertisements promoting a Ponzi scheme do not benefit a Ponzi scheme’s creditors and may actually hurt them.

After this decision, the Golf Channel filed a petition for a panel rehearing, citing a lack of Texas case law on the issue.  The Fifth Circuit granted the Golf Channel’s petition, vacated the original opinion, and certified a question to the Supreme Court of Texas regarding the proper interpretation of “value” and “reasonably equivalent value” in the context of a good faith transferee of a Ponzi scheme under the Texas Uniform Fraudulent Transfer Act (a copy of the Fifth Circuit’s new opinion is here).  The Supreme Court of Texas has accepted the certified question and requested briefs on the merits from the parties, but a date for oral argument has not yet been set.

So, it appears that, for the moment at least, all is not lost for the Golf Channel.

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Editor’s note: this post originally appeared in Law360.

In a recent decision, the United States Bankruptcy Appellate Panel of the Ninth Circuit resolved what it described as an issue of “first impression” in the Ninth Circuit — whether or not the two-year statute of limitations provided by Section 546(a) of the Bankruptcy Code “. . . preempts a state-law statute of repose such as California Civil Code § 3439.09(c).”  Rund v. Bank of America NA et al. (In re EPD Investment Co. LLC), 523 B.R. 680, 682 (B.A.P. 9th Cir. 2015).

The EPD Investment decision involved the application of the California Uniform Fraudulent Transfer Act (UFTA), set forth at Civil Code §§ 3439-3439.12, which allows a creditor to recover a fraudulent transfer from the transferee under various circumstances, including “actual fraud” and “constructive fraud.”  The statute of limitations provided in the UFTA, Civil Code § 3439.09, generally provides that claims must be brought within four years from the date of the transfer or in some cases, within one year of discovery of the claim.  The BAP found that despite the terms of Civil Code § 3439.09(c), if a claim existed under the UFTA on the date of the “order for relief,” the trustee had an additional two years to file a complaint with respect to that claim by reason of Sections 544(b) and 546(a) of the Bankruptcy Code.  EPD Investment, 523 B.R. 680 at 691-692.

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Over the years, clients have sought my advice after they have obtained a judgment against a limited liability company or a corporation, and after they have tried, without success, to collect on that judgment.  All of the typical judgment enforcement methods have already failed.  Because judgment debtors generally do not volunteer payment and sometimes will take steps to make it much more difficult for a creditor to collect, this scenario is somewhat common.  In response, clients will ask what they can do.  There are a number of options.  These include putting the judgment debtor into an involuntary bankruptcy; another option is to seek to have the judgment amended to add the principals of the debtor as additional judgment debtors.  The case of In re O’Reilly & Collins (discussed below) is interesting because it shows that although both options are available, a creditor might run into problems trying to do both. Continue reading

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Imagine . . .

You’ve just completed a purchase of a friendly competitor’s overstocked inventory from the current season.  She gave you a good price and will let you leave the goods at her warehouse for 30 days, just in time to pick them up for your end of season sale.  She’s a little hungry right now; this isn’t her first bad stocking decision, and you’ve heard rumors she’s been stretching out her vendors.

You’re not worried about your purchase, though.  You’re paying market for the inventory.  Her bank’s consented to the transfer and released its lien.  There aren’t any other liens.  You don’t need to worry about her other creditors, right? Continue reading