In 2018, Alabama joined approximately 17 other states in adopting the Uniform Voidable Transactions Act (“UVTA”) in place of the Uniform Fraudulent Transfer Act (“UFTA”). The UVTA applies to any transactions occurring on or after January 1, 2019, while the UFTA will apply to any transactions before that date.
The UVTA brings a few notable changes. Under the UFTA, some courts required a finding of fraud before setting aside a transfer. However, under the UVTA, the word fraudulent has been removed and guidance has been provided to clarify that a finding of fraud is not necessary to determine a transaction is voidable.
The burden of proof required by the UTVA is by a “preponderance of the evidence.” By contrast, under the UFTA, courts typically applied the heightened “clear and convincing” standard for the burden of proof, making the case for a voidable transfer more difficult to prove by creditors. See ALA. Code §8-9B-5(c) and 6(c).
The adoption of the UVTA also clarifies the question of choice of law. In transactions governed by the UVTA, the law of the state of the debtor’s location at the time of the transfer governs. For individuals, this would be the principal residence, and for businesses, it would be the place of business or the “chief executive office” for businesses with multiple locations. The UFTA, by contrast, while meant to be a uniform statute, has state-specific variations which in some instances can give rise to confusion and disputes over the choice of law.
The UTVA also provides clarity regarding certain defenses that can be raised against a claim for an improper transfer. Under the UFTA, a transferee may raise as a defense that they received the asset in good faith and for reasonably equivalent value. The UTVA clarifies that the debtor is the person who should receive the value required under the UFTA.
In adopting the UVTA, Alabama has taken a step toward approaching voidable transfers in a manner much closer to that of the Uniform Commercial Code and of the Bankruptcy Code. This adoption of the UVTA is a positive change for creditors as it removes some of the obstacles imposed by outdated provisions of the UFTA that hindered creditor’s ability to pursue recovery.
Disclaimer: The information provided herein is intended for educational purposes only and is not intended as legal advice and should not be relied upon as such.
Sources: Alabama Adopts the Uniform Voidable Transactions Act, Balch & Bingham, LLP, April 12, 2018, available at: https://www.balch.com/insights/publications/2018/04/al-adopts-uniform-vta