From the Desk of Chair Judy B. Calton
The Business Law Section's Advocacy
Thomas R. Morris, a partner at Silverman & Morris PLLC, past member of the Business Law Section Council, and active member of the Debtor/Creditor Rights Committee, analyzed Michigan’s proposed adoption of the Uniform Voidable Transaction Act (UVTA) at the Committee’s November 16, 2016, meeting. Tom’s work included discussions with the Uniform Law Commission staff and Michigan legislators and their staff. Tom’s analysis was so valuable, I wanted to share it with the entire Section.
Background of the Uniform Act & Senate Bill 982
The UVTA is technically a set of amendments to the Uniform Fraudulent Transfer Act (UFTA). Nine states have adopted the UVTA, and it is under consideration in seven additional states, including Michigan. Senate Bill No. 982, introduced in May, 2016, by State Senator Schuitmaker and passed by the Senate in October, will amend the Michigan Uniform Fraudulent Transfer Act (MUFTA) by enacting the UVTA with minor adaptations. The text of the UVTA approved by the National Conference of Commissions on Uniform State Laws is referred to as the “Uniform Act”.
Changes Contained in the UVTA
- Change the name of the UFTA to the “Uniform Voidable Transactions Act.”
- Add a choice-of-law provision. The UFTA contains no choice-of-law provision. The UVTA adopts the basic “place of business” definition from § 9-307 of the Uniform Commercial Code (UCC) to determine a debtor’s location, and provides that a claim for relief under the UVTA “is governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred.” The UVTA does not employ the UCC Article 9 rule that a “registered organization” is located in its state of organization.
- Clarify that the burden of proof is by a preponderance of the evidence. The “clear and convincing” standard currently applies to the issue of the existence of fraud. Foodland Distributors v. Al-Naimi, 220 Mich App 453, 481 (1996) (concurring opinion).
- Remove strict foreclosure under Article 9 from the “safe harbor” provisions applicable to the enforcement of a security interest.
- Delete the special definition of “insolvent” that applies to partnerships.
- Specify that the value given by a good-faith transferee of a transfer made without “actual intent” must be “given the debtor” if the transferee is to have a complete defense.
- Add protections to transactions entered into by “series organizations.” This is more relevant in states whose corporate/LLC laws provide for series organizations. Michigan at this time does not provide for series organizations.
SB 982 Deviates From the Uniform Act in Minor Ways
Almost all of the differences between SB 982 and the Uniform Act are stylistic. They carry over from MUFTA. For example, the section headings from the UFTA and now the UVTA are not included.
The definition of “transfer” differs slightly. The MUFTA was amended in 2009 at the time of the adoption of the Michigan Trust Code to create trust-related exceptions to the definition of “transfer.” This language is retained by SB 982.
The most significant deviation from the Uniform Act involves the statute of limitations. SB 982 proposes that the limitations period applicable to MUFTA be retained: six years for the avoidance of fraudulent transfers, and one year for the avoidance of insider preferential payments. The Uniform Act retains the limitations periods of the UFTA: one year for insider preferential payments, four years for any other voidable transaction, and a discovery rule applicable to cases of “actual intent to hinder, delay, or defraud” which allows suit to be filed “within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.” The “discovery rule” strengthens the remedy for creditors but creates uncertainty. Michigan law, MCL 600.5855, already partially addresses the issue by allowing a fraudulently concealed claim to be brought within two years of its discovery.
I encourage you to reach out directly to Tom if you want to discuss the UVTA.
Thomas R. Morris
Silverman & Morris PLLC
30500 Northwestern Highway, Suite 200
Farmington Hills, MI 48334
Direct: (248) 862-3946
Main: (248) 539-1330
Judy B. Calton
Chair, Business Law Section
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