New York Voidable Transactions

To bring a successful claim under the UVTA, a creditor must provide evidence for specific elements. These elements generally require demonstrating that a valid claim exists, that the debtor performed a transfer of property, and that this transfer resulted in some form of harm to the creditor. The law then provides remedies aimed at restoring the debtor's assets to a state where they can be used to pay off their outstanding debts. The shift in the burden of proof from "clear and convincing evidence" to a "preponderance of the evidence" has made it easier for creditors to seek recourse under the UVTA.

• Existence of a Valid Claim: A creditor must have a valid claim against the debtor. This does not necessarily have to be a final judgment at the time of the transfer, but it must be a recognizable debt or obligation that can be legally enforced.
• A "Transfer" of Assets: The debtor must have transferred property or incurred an obligation. This includes a wide range of asset disposals, from real estate to vehicles, intellectual property, or even a debt obligation. The transfer can involve physical or intangible assets and is defined broadly under the act.
• Resulting Harm to the Creditor: The transfer must have rendered the debtor insolvent or left them with an unreasonably small amount of capital to conduct their business. This element is crucial as it directly links the debtor's action to the creditor's inability to collect the debt.

Actual fraud involves a transaction made with the explicit intent to "hinder, delay, or defraud" a creditor. Proving this specific intent can be difficult, which is why courts frequently rely on circumstantial evidence known as "badges of fraud". These indicators serve as a roadmap, providing insight into the debtor's true motive behind the transfer. They collectively suggest that the transaction was not a legitimate business or personal decision, but rather a deliberate attempt to protect assets from creditors.

Badges of Fraud (Common Indicators)

• Insolvency: The debtor was already insolvent, or became insolvent shortly after the transfer. This financial distress is a strong indicator of a motive to avoid debt collection.
• Close Relationship: The transfer was made to a close family member or a business insider, such as a partner, director, or controlling shareholder. Transactions between related parties are often subject to increased scrutiny.
• Secretive Transfer: The transaction was intentionally concealed from the public or creditors, often through private agreements or unofficial channels.
• Lack of Consideration: The debtor did not receive fair value in exchange for the transferred assets. When a valuable asset is transferred for little to no compensation, it raises a strong presumption of fraudulent intent.
• Retention of Control: The debtor retained control or possession of the transferred property after the transfer was completed, continuing to enjoy its benefits without legal ownership.

Unlike actual fraud, constructive fraud does not require proof of the debtor's fraudulent intent. Instead, the focus is on the objective circumstances of the transfer itself. A transaction is considered constructively fraudulent if it was made for less than "reasonably equivalent value" while the debtor was insolvent or became insolvent as a direct result of the transfer. This type of claim is often easier to prove than a claim of actual fraud because it relies on financial facts rather than a difficult-to-prove state of mind. The UVTA's use of "reasonably equivalent value" aligns with federal bankruptcy standards, replacing the previous "fair consideration" standard.

A voidable transaction claim must be filed within a specific timeframe as outlined by the statute. The UVTA provides two separate deadlines, one based on when the transaction occurred and another based on when the creditor discovered it. These deadlines are designed to ensure that claims are brought promptly and to provide a measure of legal finality for all transactions.

• Four-year lookback period: A claim under UVTA § 274 must be filed within four years after the transaction was made or the obligation was incurred. This is the standard limitation period for most voidable transactions.
• One-year discovery rule: A claim under UVTA § 273 and § 273-a, often involving actual intent to defraud, must be filed within one year after the transfer was or reasonably could have been discovered by the claimant. This rule provides an extension in cases where the fraudulent nature of the transaction was concealed.

The remedies available under the New York UVTA are designed to provide a comprehensive set of options for creditors to recover their due. The most common remedy is the avoidance of the transfer, which essentially cancels it as if it never occurred. However, the court can also grant other forms of relief to ensure a just outcome. These tools are designed to be flexible and powerful, allowing courts to respond effectively to different types of voidable transactions.

• Avoidance: The court can set aside the transfer, thereby making the property available to the creditor for collection. This is the most direct and common remedy, as it effectively nullifies the original transaction.
• Attachment or Levy: The creditor may be able to seize the transferred asset or other property of the transferee to satisfy the debt. This is an important tool for securing the assets while the legal process is underway.
• Injunction: The court can issue an order to prevent the debtor or transferee from further disposing of the asset, preserving it for the creditors. This is a crucial preventative measure to stop further dissipation of assets.
• Receivership: A court-appointed receiver can take control of the transferred asset to manage its distribution to creditors. This remedy is typically used in more complex cases to ensure an orderly and fair distribution.