California Collection Law Development: Uniform Voidable Transactions Act Replaces Fraudulent Transfer Act

A key development for creditors seeking to collect business debt or collect judgments in California:

In July 2015, the Uniform Voidable Transactions Act was signed into California law.  This new law has implications for both debtors and creditors, as it modifies and replaces the former Uniform Fraudulent Transfer Act. 

As creditors know, collecting debt in California often involves pursuing fraudulent transfer claims.  Creditor and collection law firms, such as ours, regularly see debtors transfer away their assets in the hopes of preventing levy, garnishment, etc.  Collection attorneys and law firms are well served to quickly and aggressively pursue fraudulent transfer claims against both debtors and the recipients of the fraudulent transfers.

The Uniform Voidable Transactions Act shifts the burden of proof in certain aspects of fraudulent transfer claims and alters several definitions under the Act.  For instance, the term “fraudulent” has been replaced with the term “voidable.”  The new law’s provisions only apply to matters in which the right of action accrued, the transfer was made, or the obligation was incurred on or after the January 1, 2016.

Some of the more significant amendments to the former law include the following:

• Creditors are now permitted to procure remedies related to the transferred asset and obtain an attachment.
• The law stipulates that a transfer or obligation is not voidable against a person who took the secured asset in good faith and for a reasonably equivalent value.
• The burden is on the transferee to prove that he or she is a transferee in good faith.
• The special insolvency test for debtors that are partnerships is repealed and the new law provides that debtors that don’t pay their debts as they come due are presumed to be insolvent.
• To successfully raise an available defense all of the elements of that defense must be successfully proven.
• Creditors seeking recovery under the law must prove each element of the recovery being sought.
• The law requires that the presumptively insolvent party meet a burden of proving solvency.

The new law contains information that is imperative for all relevant parties to be aware of. The Wallin Firm is experienced in navigating through the ever-changing legal landscape, particularly relating to creditor/debtor issues.  The Wallin Firm is a business collection law firm that helps businesses collect debt in Orange County and throughout California.