Utah Enacts Uniform Voidable Transactions Act

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On March 21, 2017, Utah joined about a dozen other states in enacting the Uniform Voidable Transactions Act (the Act). This statute, which is found at §25-6-101 et seq., amends Utah’s Uniform Fraudulent Transfer Act (§25-6-1 et seq.) (UFTA) by adopting changes that were recommended in 2014 by the National Conference of Commissioners on Uniform State Laws. The Act is effective on and after May 9, 2017, and it applies to a transfer made or an obligation incurred on or after that date. See, §25-6-406(2). Thus, for transfers made, or obligations incurred, in Utah before May 9, 2017, the former UFTA will govern. In essence, the Act addresses a few narrowly defined issues and is not a comprehensive revision of the UFTA.

First, the title of the UFTA was changed because the original title was misleading in that “fraud” has never been a necessary element of a claim, and the incurrence of obligations, as well as transfers, has always been subject to the UFTA.

Second, the amendments add some new provisions that govern choice-of-law, provide uniform rules for allocating the burden of proof and define the standard of proof for both claims and defenses. The changes also respond to the emergence of the “series organization” as a significant form of business. The Act adds a new section which provides that each “protected series” of a series organization is to be treated as a person for purposes of the Act, even if it is not treated as a person for other purposes. See, §25-6-403.

The amendments also delete the special definition of “insolvency” for partnerships. Now, under the general definition of “insolvency” the debtor is insolvent if, at a fair valuation, the sum of the debtor’s debts is greater than the sum of the debtor’s assets. Thus, the net worth of the partners of a partnership is no longer considered in determining whether the partnership is insolvent.

Finally, the amendments refine in relatively minor respects several provisions of the UFTA relating to defenses available to a transferee or obligee. For instance, now a good faith transferee or obligee must also show that value was given “to the debtor.” In addition, a new defense is added for a “subsequent transferee.” Importantly, the defense formerly available for transfers resulting from enforcement of a security interest in compliance with Article 9 of the Uniform Commercial Code has been eliminated for acceptance of collateral in full or partial satisfaction of the underlying obligation it secures. See, §25-6-304(5)(b).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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