Debtor-Creditor Rights

Notes on HB 4618

Dear Members:

HB 4618 (the “Bill”), a copy of which is attached to this message, was recently introduced by the Michigan legislature. It attempts to modify the Michigan Uniform Voidable Transactions Act (“UVTA”) to harmonize gaps with the Michigan Qualified Disposition in Trust Act (an analysis of which was prepared by Judith Greenstone Miller and Paul R. Hage and published in the Spring 2018 Michigan Business Law Journal and is also attached to this message).

Summary of the Bill

Definitions

There are additions to the definitions section of the UVTA that make reference to the Michigan Qualified Disposition in Trust Act (“DAPTA”), evidencing an intent to harmonize the two sections. The relevant additions are below:

  • “Disposition” means that term as defined in section 2 of the qualified dispositions in trust act, 2016 PA 330, MCL 700.1042. See § 1(g) (emphasis added).
  • “Qualified disposition” means that term as defined in section 2 of the qualified dispositions in trust act, 2016 PA 330, MCL 700.1042. See § 1(n) (emphasis added).
  • “Qualified trustee” means that term as defined in section 2 of the qualified dispositions in trust act, 2016 PA 330, MCL 700.1042. See § 1(o) (emphasis added).

Burden of Proof

The UVTA was silent on the burden of proof required for qualified dispositions. The Uniform Fraudulent Transfer Act (“UFTA”) makes clear that the standard for setting aside a transfer into a domestic asset protection trust (“DAPT”) is “clear and convincing,” as opposed to merely showing “by a preponderance of the evidence.” The UVTA does not contain a similar provision.

The revised version of the statute appears to correct this omission:

With respect to a qualified disposition, a creditor has the burden of proving the elements of the claim for relief by clear and convincing evidence.” See §§ 4(4) and 5(4).

Choice of Law

Finally, the UVTA and the DAPTA do not contain any choice of law clarification when it came to domestic asset protection trusts. The DAPTA and the amendments to the UFTA were adopted in Michigan before the UVTA was passed. As a result, neither the DAPTA, nor the UVTA, address choice of law in the case of a DAPT.

The revised version of the statute once again addresses this omission:

With respect to a qualified disposition, a claim for relief under this act or a claim that a disposition is not a qualified disposition is governed by the local law of the jurisdiction in which the qualified trustee serving at the time the disposition was made was located.” See § 10(4).

In addition, with respect to the qualified trustee’s location, the revised statute provides:

  • (a) A qualified trustee who is an individual is located at the individual’s principal residence.
  • (b) A qualified trustee whose activities are subject to supervision by the department of insurance and financial services, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, or the Office of Thrift Supervision is located at the business location of the primary trust officer. See § 10(2)(a)-(b).

Conclusion

We believe that all of changes contained in the Bill are consistent with the UVTA, and thus, we are not recommending that the Committee take any action with respect to the Bill. Nevertheless, if you think otherwise and believe that we should comment on the Bill, please contact one of us.

Judith Greenstone Miller, Co-Chair of the Committee
jmiller@jaffelaw.com
Marc N. Swanson, Co-Chair of the Committee
swansonm@millercanfield.com
Paul R. Hage, Vice Co-Chair of the Committee
phage@jaffelaw.com
Shanna M. Kaminski, Vice Co-Chair of the Committee
skaminski@kaminskilawplc.com
Judy B. Calton, Emeritus Chair of the Committee
judy.b.calton@gmail.com