Chapter 242

242.02(2) (2) A 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.

242.02(3) (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.

242.02 History History: 1987 a. 192; 2023 a. 246.

242.03 242.03 Value.

242.03(1) (1) Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person.

242.03(2) (2) For the purposes of ss. 242.04 (1) (b) and 242.05, a person gives a reasonably equivalent value if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the interest of the debtor upon default under a mortgage, deed of trust or security agreement.

242.03(3) (3) A transfer is made for present value if the exchange between the debtor and the transferee is intended by them to be contemporaneous and is in fact substantially contemporaneous.

242.03 History History: 1987 a. 192.

242.04 242.04 Transfer or obligation voidable as to present or future creditor.

242.04(1) (1) A transfer made or obligation incurred by a debtor is 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:

242.04(1)(a) (a) With actual intent to hinder, delay or defraud any creditor of the debtor; or

242.04(1)(b) (b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

242.04(1)(b)1. 1. Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

242.04(1)(b)2. 2. Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.

242.04(2) (2) In determining actual intent under sub. (1) (a), consideration may be given, among other factors, to whether:

242.04(2)(a) (a) The transfer or obligation was to an insider;

242.04(2)(b) (b) The debtor retained possession or control of the property transferred after the transfer;

242.04(2)(c) (c) The transfer or the obligation was disclosed or concealed;

242.04(2)(d) (d) Before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit;

242.04(2)(e) (e) The transfer was of substantially all the debtor’s assets;

242.04(2)(f) (f) The debtor absconded;

242.04(2)(g) (g) The debtor removed or concealed assets;

242.04(2)(h) (h) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

242.04(2)(i) (i) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

242.04(2)(j) (j) The transfer occurred shortly before or shortly after a substantial debt was incurred; and

242.04(2)(k) (k) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

242.04(3) (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.

242.04 History History: 1987 a. 192; 2023 a. 246.

242.04 Annotation The Wisconsin Uniform Fraudulent Transfer Act [now the Uniform Voidable Transactions Law] exists independently from the common law history of the law of fraudulent conveyances and fulfills a purpose quite separate from that of the fraudulent transaction exception to the rule of successor non-liability. Whereas the Act is designed to assist creditors in collecting on claims that may be frustrated by recent asset transfers, the fraudulent transaction exception is a doctrine that prevents successor companies from avoiding obligations incurred by their predecessors. This chapter has not supplanted the common law fraudulent transaction exception to the rule of successor non-liability. Springer v. Nohl Electric Products Corporation, 2018 WI 48, 381 Wis. 2d 438, 912 N.W.2d 1, 15-0829.

242.05 242.05 Transfer or obligation voidable as to present creditor.

242.05(1) (1) A transfer made or obligation incurred by a debtor is 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.

242.05(2) (2) A transfer made by a debtor is 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.

242.05(3) (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.

242.05 History History: 1987 a. 192; 2023 a. 246.

242.05 Annotation Unlike other provisions of the Uniform Fraudulent Transfer Act governing transfers made with fraudulent intent, this section deems certain transactions constructively fraudulent based on the circumstances of the transfer. Proving fraudulent intent is not necessary under this section. Beck v. BidRX, LLC, 2018 WI App 61, 384 Wis. 2d 207, 918 N.W.2d 96, 17-2043.

242.05 Annotation Sub. (2) addresses “preferential transfers,” a novel category of fraudulent transaction based on bankruptcy principles that attacks a transfer by an insolvent debtor to pay an antecedent debt to a preferred insider. The provision is aimed at diminishing the sometimes unfair advantages insiders possess when they are familiar with the debtor’s financial status. A person attacking a transfer under sub. (2) must show that the debtor is improperly preferring insider creditors over others. Beck v. BidRX, LLC, 2018 WI App 61, 384 Wis. 2d 207, 918 N.W.2d 96, 17-2043.

242.05 Annotation The evidence in this case was insufficient to prove a fraudulent transfer under sub. (2) because no evidence was introduced showing that the allegedly fraudulent transfers were made to satisfy an antecedent debt. The fact of a transfer to an insider is not enough; it is the preferential payment of prior debts to insiders to which sub. (2) is addressed. Beck v. BidRX, LLC, 2018 WI App 61, 384 Wis. 2d 207, 918 N.W.2d 96, 17-2043.

242.05 Annotation Intent to defraud need not be proved under this section. DeWitt, Porter v. Kovalic, 991 F.2d 1243 (1993).

242.05 Note NOTE: The above annotations relate to the Uniform Fraudulent Transfer Act as adopted in this chapter prior to the revision and renaming of that chapter to the Uniform Voidable Transactions Law by 2023 Wis. Act 246.

242.06 242.06 When transfer is made or obligation is incurred. For the purposes of this chapter:

242.06(1) (1) A transfer is made:

242.06(1)(a) (a) With respect to an asset that is real property other than a fixture, but including the interest of a seller or purchaser under a contract for the sale of the asset, when the transfer is so far perfected that a good-faith purchaser of the asset from the debtor against whom applicable law permits the transfer to be perfected cannot acquire an interest in the asset that is superior to the interest of the transferee.

242.06(1)(b) (b) With respect to an asset that is not real property or that is a fixture, when the transfer is so far perfected that a creditor on a simple contract cannot acquire a judicial lien other than under this chapter that is superior to the interest of the transferee.

242.06(2) (2) If applicable law permits the transfer to be perfected as provided in sub. (1) and the transfer is not so perfected before the commencement of an action for relief under this chapter, the transfer is deemed made immediately before the commencement of the action.

242.06(3) (3) If applicable law does not permit the transfer to be perfected as provided in sub. (1), the transfer is made when it becomes effective between the debtor and the transferee.

242.06(4) (4) A transfer is not made until the debtor has acquired rights in the asset transferred.

242.06(5) (5) An obligation is incurred:

242.06(5)(a) (a) If oral, when it becomes effective between the parties.

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

242.06 History History: 1987 a. 192; 2023 a. 246.

242.06 Annotation Sub. (1) requires viewing a transfer exclusively from the perspective of the creditor and not a transferee. What the transferees may have believed regarding with whom they were dealing is irrelevant under sub. (1). The good-faith defense under s. 242.08 (1) applies only to claims made under s. 242.04 (1) (a), not to claims under this section. Badger State Bank v. Taylor, 2004 WI 128, 276 Wis. 2d 312, 688 N.W.2d 439, 03-0750.

242.07 242.07 Remedies of creditors.

242.07(1) (1) In an action for relief against a transfer or obligation under this chapter, a creditor, subject to the limitations in s. 242.08, may obtain any of the following:

242.07(1)(a) (a) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim.

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

242.07(1)(c) (c) Subject to applicable principles of equity and in accordance with applicable rules of civil procedure:

242.07(1)(c)1. 1. An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property;

242.07(1)(c)2. 2. Appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or

242.07(1)(c)3. 3. Any other relief the circumstances may require.

242.07(2) (2) If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds.

242.07 History History: 1987 a. 192; 2023 a. 246.

242.07 Annotation Nothing in ch. 242 changes the principle of law that compensatory damages are a threshold requirement for awarding punitive damages or otherwise permits a punitive damages award. Rescission under sub. (1) is an equitable remedy and does not constitute compensatory damages. C & A Investments v. Kelly, 2010 WI App 151, 330 Wis. 2d 223, 792 N.W.2d 644, 09-2420.

242.08 242.08 Defenses, liability, and protection of transferee or obligee.

242.08(1) (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.

242.08(2) (2) 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:

242.08(2)(am) (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:

242.08(2)(am)1. 1. The first transferee of the asset or the person for whose benefit the transfer was made.

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

242.08(2)(am)2.a. a. A good faith transferee who took for value.

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

242.08(2)(bm) (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.

242.08(3) (3) If the judgment under sub. (2) is based upon the value of the asset transferred, the judgment must be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require.

242.08(4) (4) Notwithstanding voidability of a transfer or an obligation under this chapter, a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to any of the following:

242.08(4)(a) (a) A lien on or a right to retain any interest in the asset transferred.

242.08(4)(b) (b) Enforcement of any obligation incurred.

242.08(4)(c) (c) A reduction in the amount of the liability on the judgment.

242.08(5) (5) A transfer is not voidable under s. 242.04 (1) (b) or 242.05 if the transfer results from any of the following:

242.08(5)(a) (a) Termination of a lease upon default by the debtor when the termination is pursuant to the lease and applicable law.

242.08(5)(b) (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.

242.08(6) (6) A transfer is not voidable under s. 242.05 (2):

242.08(6)(a) (a) To the extent that the insider gave new value to or for the benefit of the debtor after the transfer was made unless the new value was secured by a valid lien;

242.08(6)(b) (b) If made in the ordinary course of business or financial affairs of the debtor and the insider; or

242.08(6)(c) (c) If made pursuant to a good-faith effort to rehabilitate the debtor and the transfer secured present value given for that purpose as well as an antecedent debt of the debtor.

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

242.08(7)(a) (a) A party that seeks to invoke sub. (1), (4), (5), or (6) has the burden of proving the applicability of that subsection.

242.08(7)(b) (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).

242.08(7)(c) (c) The transferee has the burden of proving the applicability to the transferee of sub. (2) (am) 2. a. or b.

242.08(7)(d) (d) A party that seeks adjustment under sub. (3) has the burden of proving the adjustment.

242.08(8) (8) The standard of proof required to establish matters referred to in this section is preponderance of the evidence.