FINAL BILL REPORT

HB 94

                                  C 444 L 87

BYRepresentative P. King 

Enacting the new uniform fraudulent transfer act.

House Committe on Judiciary

Senate Committee on Judiciary

SYNOPSIS AS ENACTED

BACKGROUND:

The Uniform State Laws Commission promotes the standardization of laws nationwide on issues that are common to many states, such as commercial law.  The commission drafted the Uniform Fraudulent Conveyances Act in 1918, which was adopted by Washington in 1945.  The intent of the law is to discourage fraudulent transfers made by a debtor to harm a creditor's interest in property.  The primary remedy offered by the law allows the creditor to void the transfer or attach (lien) the conveyed property.

The commission drafted a revision to the act in 1984, retitling it the Uniform Fraudulent Transfer Act to recognize its application to both personal and real property.  The revised act considers changes made regarding fraudulent transfers by the Bankruptcy Reform Act of 1978.  The revised act also incorporates standard business practices for perfecting security interests, as well as defining when a transfer has occurred, two areas of the prior act that have caused confusion.

SUMMARY:

The Uniform Fraudulent Transfer Act is adopted in Washington to replace the Uniform Fraudulent Conveyances Act.  A fraudulent transaction is a transfer of property or an obligation incurred with the intent to hinder, delay, or defraud creditors. Transfers without adequate consideration are generally fraudulent if the debtor is or becomes insolvent, knows he cannot pay his debts, or is left with assets insufficient to conduct business.  In determining fraud, the adequacy of consideration depends on whether a reasonably equivalent value is received in the transfer.

Several additional terms are specifically defined for clarity. The distinction between a matured claim and an unmatured claim of a creditor is eliminated.  Both existing creditors and creditors whose interests arise subsequent to the transfer are covered by the act.  Paying insider creditors, such as relatives and corporate officers, prior to paying unrelated creditors is a fraudulent transfer.

If a creditor has been harmed by a fraudulent transfer, and listed defenses do not apply, the creditor may:  (1) obtain avoidance of the transfer or obligation; (2) obtain attachment of the asset transferred or other property of the transferee; or (3) obtain an injunction, appoint a receiver, or be granted other appropriate equitable remedies.

There is a statute of limitations for enforcing rights under the act.  The periods of limitation are generally from one to four years, depending on the type of fraudulent transfer.

VOTES ON FINAL PASSAGE:

      House 95   0

      Senate    49     0(Senate amended)

      House 89   0(House concurred)

EFFECTIVE:July 1, 1988