AB453: Bill Text

September 28, 2023 - Introduced by Representatives Tusler and O’Connor, cosponsored by Senators Wimberger and Ballweg. Referred to Committee on Consumer Protection.

AB453,,2 An Act to repeal 242.02 (4); to renumber 242.08 (2) (a); to renumber and amend 242.08 (2) (b); to amend chapter 242 (title), 242.01 (3), 242.01 (9), 242.01 (12), 242.02 (2), 242.02 (3), 242.04 (title), 242.04 (1) (intro.), 242.05 (title), 242.05 (1), 242.05 (2), 242.06 (5) (b), 242.07 (1) (b), 242.08 (title), 242.08 (1), 242.08 (2) (intro.), 242.08 (5) (b), 402.402 (3) (b), 411.308 (2) (b), 705.07 (2), 815.18 (10) and 893.425; and to create 242.01 (6m), 242.01 (8m), 242.01 (10m), 242.01 (11m), 242.04 (3), 242.05 (3), 242.08 (2) (am) 2. b. and (bm), 242.08 (7) and (8), 242.094, 242.096, 242.12 and 242.13 of the statutes; relating to: adopting modifications to, and renaming, the Uniform Fraudulent Transfer Act.

AB453,,3 Analysis by the Legislative Reference Bureau

This bill adopts the Uniform Law Commission’s 2014 modifications to the Uniform Fraudulent Transfer Act, including its renaming as the Uniform Voidable Transactions Law.

Current law incorporates the Uniform Fraudulent Transfer Act (1984), adopted in this state in 1988. Under current law, a creditor may challenge certain transfers of property or obligations incurred by a debtor that may deprive the creditor of assets that would otherwise be available to satisfy debts if the debtor is or is about to become insolvent, such as the transfer of the debtor’s assets to a family member or corporate insider. A “creditor” is any person who has a claim and a “debtor” is any person who is liable on a claim. A “claim” is a right to payment, whether it arises by contract, tort, or otherwise, and a “debt” means liability on a claim. There are four basic situations in which the creditor may challenge a transfer made or obligation incurred by the debtor (hereafter referred to as voidable transactions):

1. If the transfer is made or obligation incurred by the debtor to intentionally hinder, delay, or defraud the creditor.

2. If the debtor transfers property or incurs the obligation without receiving a reasonably equivalent value in exchange, and the debtor engages in business or a transaction for which the debtor’s remaining assets are unreasonably small or the debtor intends to incur debts beyond the debtor’s ability to pay as they become due.

3. If there is an existing creditor-debtor relationship, the debtor makes a transfer or incurs an obligation without receiving a reasonably equivalent value in exchange, and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation. A debtor who is generally not paying debts as they become due is presumed to be insolvent.

4. If the debtor makes a transfer to an insider for a preexisting debt, the debtor was insolvent at the time of the transfer, and the insider had reasonable cause to believe that the debtor was insolvent. “Insider” is a defined term and includes certain relatives of an individual debtor and officers and directors of a corporate debtor.

Current law specifies various remedies available to a creditor if a voidable transaction has occurred. These remedies include the avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim, attachment against the asset transferred or other property of the person to whom the asset was transferred, an injunction, and appointment of a receiver.

The bill adopts the ULC’s 2014 modifications to the uniform act, including the following:

1. The bill renames the provisions of the act to be the Uniform Voidable Transactions Law and replaces the term “fraudulent” with “voidable” in various provisions. The ULC specified that these changes were not intended to have substantive effect and were made to more accurately convey the effect of current law, which frequently uses the term “fraudulent” but does not actually require fraudulent activity as a condition to its application.

2. The bill creates provisions that specify, for claims and defenses related to voidable transactions, which party has the burden of proof and establishes the standard of proof as a preponderance of the evidence.

3. The bill creates a choice-of-law rule for courts to determine which state’s voidable transactions law applies in a given case. Under the bill, a court must apply the law of the state where the debtor is located at the time the transfer is made or obligation incurred.

4. The bill eliminates a provision that applies a different standard for determining insolvency for a partnership, so that the general insolvency standard applies to partnerships.

AB453,,4 The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB453,1 Section 1. Chapter 242 (title) of the statutes is amended to read:

AB453,,6 CHAPTER 242

AB453,,7 UNIFORM FRAUDULENT TRANSFER ACT

AB453,,8 VOIDABLE TRANSACTIONS LAW

AB453,2 Section 2. 242.01 (3) of the statutes is amended to read:

AB453,,10 242.01 (3) “Claim” “Claim,” except as used in “claim for relief,” means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.

AB453,3 Section 3. 242.01 (6m) of the statutes is created to read:

AB453,,12 242.01 (6m) “Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

AB453,4 Section 4. 242.01 (8m) of the statutes is created to read:

AB453,,14 242.01 (8m) “Organization” means a person other than an individual.

AB453,5 Section 5. 242.01 (9) of the statutes is amended to read:

AB453,,16 242.01 (9) “Person” means an individual, estate, partnership, corporation, limited liability company, association, organization, trust, business or nonprofit entity, public corporation, government or governmental subdivision or, agency, business trust, estate, trust or instrumentality, or any other legal or commercial entity.

AB453,6 Section 6. 242.01 (10m) of the statutes is created to read:

AB453,,18 242.01 (10m) “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

AB453,7 Section 7. 242.01 (11m) of the statutes is created to read:

AB453,,20 242.01 (11m) “Sign” means, with present intent to authenticate or adopt a record, any of the following:

AB453,,21 (a) To execute or adopt a tangible symbol.

AB453,,22 (b) To attach to or logically associate with the record an electronic symbol, sound, or process.

AB453,8 Section 8. 242.01 (12) of the statutes is amended to read:

AB453,,24 242.01 (12) “Transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.

AB453,9 Section 9. 242.02 (2) of the statutes is amended to read:

AB453,,26 242.02 (2) A debtor is insolvent if, at a fair valuation, the sum of the debtor’s debts is greater than all the sum of the debtor’s assets at a fair valuation.

AB453,10 Section 10. 242.02 (3) of the statutes is amended to read:

AB453,,28 242.02 (3) A debtor who is generally not paying the debtor’s debts as they become due other than as a result of a bona fide dispute is presumed to be insolvent. The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence.

AB453,11 Section 11. 242.02 (4) of the statutes is repealed.

AB453,12 Section 12. 242.04 (title) of the statutes is amended to read:

AB453,,31 242.04 (title) Transfers fraudulent Transfer or obligation voidable as to present and or future creditors creditor.

AB453,13 Section 13. 242.04 (1) (intro.) of the statutes is amended to read:

AB453,,33 242.04 (1) (intro.) A transfer made or obligations obligation incurred by a debtor is fraudulent 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:

AB453,14 Section 14. 242.04 (3) of the statutes is created to read:

AB453,,35 242.04 (3) A creditor making a claim for relief under sub. (1) has the burden of proving the elements of the claim for relief by a preponderance of the evidence.

AB453,15 Section 15. 242.05 (title) of the statutes is amended to read:

AB453,,37 242.05 (title) Transfers fraudulent Transfer or obligation voidable as to present creditors creditor.

AB453,16 Section 16. 242.05 (1) of the statutes is amended to read:

AB453,,39 242.05 (1) A transfer made or obligation incurred by a debtor is fraudulent voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

AB453,17 Section 17. 242.05 (2) of the statutes is amended to read:

AB453,,41 242.05 (2) A transfer made by a debtor is fraudulent voidable as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time and the insider had reasonable cause to believe that the debtor was insolvent.

AB453,18 Section 18. 242.05 (3) of the statutes is created to read:

AB453,,43 242.05 (3) Subject to s. 242.02 (3), a creditor making a claim for relief under sub. (1) or (2) has the burden of proving the elements of the claim for relief by a preponderance of the evidence.

AB453,19 Section 19. 242.06 (5) (b) of the statutes is amended to read:

AB453,,45 242.06 (5) (b) If evidenced by a writing record, when the writing executed record signed by the obligor is delivered to or for the benefit of the obligee.

AB453,20 Section 20. 242.07 (1) (b) of the statutes is amended to read:

AB453,,47 242.07 (1) (b) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with if available under chs. 810 to 813 or other applicable law.

AB453,21 Section 21. 242.08 (title) of the statutes is amended to read:

AB453,,49 242.08 (title) Defenses, liability, and protection of transferee or obligee.

AB453,22 Section 22. 242.08 (1) of the statutes is amended to read:

AB453,,51 242.08 (1) A transfer or obligation is not voidable under s. 242.04 (1) (a) against a person who took in good faith and for a reasonably equivalent value given the debtor or against any subsequent transferee or obligee.

AB453,23 Section 23. 242.08 (2) (intro.) of the statutes is amended to read:

AB453,,53 242.08 (2) (intro.) Except as otherwise provided in this section, to To the extent a transfer is voidable in an action by a creditor under s. 242.07 (1) (a), all of the following rules apply:

AB453,,54 (am) Except as otherwise provided in this section, the creditor may recover judgment for the value of the asset transferred, as adjusted under sub. (3), or the amount necessary to satisfy the creditor’s claim, whichever is less. The judgment may be entered against any of the following:

AB453,24 Section 24. 242.08 (2) (a) of the statutes is renumbered 242.08 (2) (am) 1.

AB453,25 Section 25. 242.08 (2) (am) 2. b. and (bm) of the statutes are created to read:

AB453,,57 242.08 (2) (am) 2. b. An immediate or mediate good faith transferee of a person described in subd. 2. a.

AB453,,58 (bm) Recovery pursuant to s. 242.07 (1) (a) or (2) of or from the asset transferred or its proceeds, by levy or otherwise, is available only against a person described in par. (am) 1. or 2.

AB453,26 Section 26. 242.08 (2) (b) of the statutes is renumbered 242.08 (2) (am) 2. and amended to read:

AB453,,60 242.08 (2) (am) 2. Any subsequent An immediate or mediate transferee of the first transferee, other than a any of the following:

AB453,,61 a. A good faith transferee who took for value or from any subsequent transferee.

AB453,27 Section 27. 242.08 (5) (b) of the statutes is amended to read:

AB453,,63 242.08 (5) (b) Enforcement of a security interest in compliance with ch. 409, other than acceptance of collateral in full or partial satisfaction of the obligation it secures.

AB453,28 Section 28. 242.08 (7) and (8) of the statutes are created to read:

AB453,,65 242.08 (7) The following rules determine the burden of proving matters referred to in this section:

AB453,,66 (a) A party that seeks to invoke sub. (1), (4), (5), or (6) has the burden of proving the applicability of that subsection.

AB453,,67 (b) Except as otherwise provided in pars. (c) and (d), the creditor has the burden of proving each applicable element of sub. (2) or (3).

AB453,,68 (c) The transferee has the burden of proving the applicability to the transferee of sub. (2) (am) 2. a. or b.

AB453,,69 (d) A party that seeks adjustment under sub. (3) has the burden of proving the adjustment.

AB453,,70 (8) The standard of proof required to establish matters referred to in this section is preponderance of the evidence.

AB453,29 Section 29. 242.094 of the statutes is created to read:

AB453,,72 242.094 Governing law. (1) In this section, the following rules determine a debtor’s location:

AB453,,73 (a) A debtor who is an individual is located at the individual’s principal residence.

AB453,,74 (b) A debtor that is an organization and has only one place of business is located at its place of business.