SENATE BILL REPORT

HB 94

BYRepresentative P. King 

Enacting the new uniform fraudulent transfer act.

House Committe on Judiciary

Senate Committee on Judiciary

Senate Hearing Date(s):March 10, 1987; March 12, 1987

Majority Report:  Do pass as amended.

      Signed by Senators Talmadge, Chairman; Halsan, Vice Chairman; Moore, Nelson.

Senate Staff:Lidia Mori (786-7461)

                  March 13, 1987

AS REPORTED BY COMMITTEE ON JUDICIARY, MARCH 12, 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 Chapter 19.40 RCW.  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.  Adequate 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 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.

SUMMARY OF PROPOSED SENATE AMENDMENTS:

This act will become effective on July 1, 1988.

An interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant is not one of the exceptions from the definition of "assets" in the Act.

Fiscal Note:      requested

Senate Committee - Testified: Representative Paul King