New York Overhauls Its Fraudulent Conveyance Law with Enactment of the Uniform Voidable Transactions Act
With little fanfare, New York has recently enacted a complete overhaul of its fraudulent conveyance law. On December 6, 2019, Governor Cuomo signed into law an Act that entirely repeals New York’s existing fraudulent conveyance law which has been in place since 1925, and replaces it with the Uniform Law Commission’s Uniform Voidable Transactions Act (UVTA). The UVTA was promulgated as the successor to the Uniform Fraudulent Transfers Act in place in most states (but not New York), and has so far been enacted in 20 other states.
The UVTA will become effective in New York on April 4, 2020, and includes a number of substantive changes of interest to creditors. Among other things:
- Shorter statute of limitations. The UVTA eliminates New York’s uniquely long six-year statute of limitations for fraudulent conveyances and replaces it with a statute of repose expiring four years after the date of the challenged transaction or one year after the date of reasonable discovery, whichever is later. This change brings New York’s statute of limitations in line with most other states and eliminates what is sometimes an advantage for creditors.
- Codified bright-line choice of law rule. Currently, New York employs a common-law, multi-factor choice of law analysis for fraudulent conveyance claims. To reduce forum shopping, the new Act codifies a uniform choice of law rule based on the debtor’s location at the time of the transfer, determined by reference to its chief executive office.
- Burden of proof lowered. Currently, New York law requires “clear and convincing proof” of the transferor’s intent to hinder, delay, or defraud creditors in intentional fraudulent conveyance cases. The UVTA provides that the “preponderance of the evidence” standard will now apply to all claims under the Act, including intentional fraudulent conveyance claims.
- The terms “fraudulent conveyance” and “fraudulent transfer” are no more. With an aim of making clear to courts that fraudulent conveyances should not be considered a species of fraud and subjected to heightened pleading requirements, the Commission struck the term “fraudulent” from the text. The new terminology is “voidable transaction.”
- Definitions of “insolvency” and other key terms modernized. The UVTA replaces archaic and idiosyncratic definitions of “insolvency” and other key terms with new versions that are more consistent with those of related terms in the Bankruptcy Code.
- The changes are not retroactive. If you have a pending claim under the old law or are contemplating bringing a claim under the old law based on a past conveyance, do not worry; the changes should not affect your claim. The Act expressly provides that it applies to transfers made or obligations incurred on or after its effective date (April 4, 2020), and that it does not apply to transfers made or obligations incurred, or claims that accrued, prior to its effective date. Thus, pre-April 4, 2020 claims should continue to be governed by the old law, including its six-year statute of limitations.
If you have any questions about how the new Act may affect any claims or potential claims you have, please feel free to contact Jeffrey C. Fourmaux at 212.833.1190, email@example.com.