New York Modernizes the Debtor and Creditor Law

On December 6, 2019, the Governor signed a bill repealing Article 10 of the Debtor and Creditor Law (“DCL”) and replacing it with provisions contained in the Uniform Voidable Transactions Act (known until recently as the Uniform Fraudulent Transfer Act).

Until now, New York State remained one of only two states that had not adopted the UVTA.  The existing DCL provisions derived from the UFCA adopted by New York State in 1925.

In this blog, I have made some preliminary observations about the new Article 10.

Many of the changes bring Article 10 into line with Section 548 of the Bankruptcy Code.

First, perhaps most significantly, the avoidance period has been reduced from six to four years.  Previously, the DCL operated under a CPLR 213 catch all provision where no express limitation was provided for elsewhere.  Four has been the norm in most other states for some time.

Second, no comparable provision to former DCL Section 273-a (the “special” provision for litigation defendants, which provides for a remedy where a transfer was made during a litigation in which judgment is entered against the transferor and not satisfied) is included in the new Article 10.

Third, the UVTA creates an insider preference claim in Section 274(b), which is subject to statutory defenses under Section 277(f) and a one-year look back period.

Fourth, good faith has been removed as an element of fair consideration.  Formerly, “fair consideration” required both “fair equivalent” and that the transfer have been made in “good faith”.  Instead, “reasonably equivalent value”, as understood in the bankruptcy context, will be the standard.

Fifth, the term “voidable” is used in lieu of “fraudulent” and the terms “voidable transactions” have replaced “fraudulent conveyances”.

Sixth, the choice of law question has been simplified as the principal location of the debtor-transferor at the time of transfer will govern.

Seventh, the new Article 10 will only be applicable to transfers made on and after April 4, 2020.

At my Dean’s Hour presentation at the Nassau County Bar Association on March 4, 2020 I will discuss the new Article 10, how it differs from its predecessor, how it differs from the avoidance claims under Chapter 5 of the Bankruptcy Code and the implications of the April 4, 2020 effective date.

I hope to see you there.

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