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.

This 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.

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

AB719,1 Section 1. Chapter 242 (title) of the statutes is amended to read:

AB719,3,4 CHAPTER 242 UNIFORM FRAUDULENT TRANSFER ACT voidable transactions law

AB719,2 Section 2. 242.01 (3) of the statutes is amended to read:

AB719,3,9 242.01 (3) “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.

AB719,3 Section 3. 242.01 (6m) of the statutes is created to read:

AB719,3,12 242.01 (6m) “Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

AB719,4 Section 4. 242.01 (8m) of the statutes is created to read:

AB719,3,14 242.01 (8m) “Organization” means a person other than an individual.

AB719,5 Section 5. 242.01 (9) of the statutes is amended to read:

AB719,3,20 242.01 (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.

AB719,6 Section 6. 242.01 (10m) of the statutes is created to read:

AB719,4,4 242.01 (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.

AB719,7 Section 7. 242.01 (11m) of the statutes is created to read:

AB719,4,7 242.01 (11m) “Sign" means, with present intent to authenticate or adopt a record, any of the following: