HOUSE BILL REPORT

HB 94

BYRepresentative P. King 

Enacting the new uniform fraudulent transfer act.

House Committe on Judiciary

Majority Report:     Do pass.  (14)

     Signed by Representatives Armstrong, Chair; Crane, Vice Chair; Appelwick, Hargrove, Heavey, Lewis, Locke, Moyer, Niemi, Padden, Patrick, Scott, Wang and Wineberry.

House Staff:Charlie Gavigan (786-7392)

AS PASSED HOUSE FEBRUARY 25, 1987

BACKGROUND:

The Uniform State Laws Commission promotes standard laws nationwide on issues that are common to many states, such as the commercial code.  The commission drafted the Uniform Fraudulent Conveyances Act in 1918, which was adopted by Washington in 1945 as RCW 19.40.  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 statute 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 UCC principals on perfecting security interests (especially personal property) and defines when a transfer has occurred, two areas that have caused confusion.

SUMMARY:

The 1984 Uniform Fraudulent Transfer Act is adopted 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 insufficient assets to conduct his 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 difference 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.  Insiders (relatives, corporate officers, etc.) cannot be paid prior to unrelated creditors being satisfied without committing a fraudulent transfer.

If subject to a fraudulent transfer, and listed defenses do not apply, a creditor may:

(1) obtain avoidance of the transfer or obligation;

(2) obtain attachment of the asset transferred or other property of the transferee;

(3) obtain an injunction, appoint a receiver, or be granted other appropriate equitable remedies.

There is a statute of limitations, generally from one to four years depending on the type of fraudulent transfer.

EFFECT OF SENATE AMENDMENT(S):  This act is to take effect on July 1, 1988.  A reference to tenancy by the entirety is removed because this type of property ownership does not exist in Washington.

Fiscal Note:    Not Requested.

House Committee ‑ Testified For:     Francis E. Holman, Uniform Law Commission.

House Committee - Testified Against: None Presented.

House Committee - Testimony For:     The bill updates older law, includes personal property, and includes changes made by Bankruptcy Act and UCC.

House Committee - Testimony Against: None Presented.

VOTE ON FINAL PASSAGE:

     Yeas 95; Nays 0; Absent 0; Excused 3

Excused:   Representatives Ballard, Taylor and Mr. Speaker