The Alabama Uniform Voidable Transactions Act (AUVTA) supersedes the Alabama Uniform Fraudulent Transfer Act (AUFTA) and is applicable to transactions after January 1, 2019. Chris Glenos explains that while the AUVTA is not an extensive overhaul of the AUFTA, it introduces several targeted changes aimed at eliminating confusion and aligning the law with other statutes. He notes that key changes include the addition of a choice of law provision, redefined burdens of proof, refined definitions of insolvency and defenses, and expanded applicability to series organizations.
Although the changes under the AUVTA are relatively minor, the shift from "fraudulent" to "voidable" in its name represents a significant correction. This change addresses centuries-old misunderstandings about fraudulent transfers, which can be traced back to an incorrect translation of the Latin phrase "in fraudem creditorum" in the mid-1500s. To appreciate the current state of the law, it's important to understand its historical context.
Glenos takes us back to the roots of fraudulent transfer law, which is deeply embedded in Roman law, specifically the Institutes of Justinian within the Corpus Juris Civilis, the Roman Civil Code. These ancient principles stated that property transfers made to defraud creditors could be seized, avoided, and recovered by the creditors, a concept that has remained largely unchanged since its publication in 533 A.D.
Roman law's influence extended to England during the missions of St. Augustine in the late fifth century A.D., where it continued to shape the development of English common law over the centuries. However, English courts often denied the use and application of Roman law due to growing English prejudice against anything Roman. This antipathy was rooted in a rejection of Roman public law and extended to Roman private law, creating a complicated relationship with foreign legal concepts.
By the 1500s, England's burgeoning status as a mercantile power necessitated a more robust statutory law system. English lawmakers borrowed heavily from Roman law, though they often altered terms to maintain a semblance of originality. One key concept they incorporated was "in fraudem creditorum" or "in fraud of creditors." However, as Glenos elucidates, the term "fraudem" in Latin did not mean "fraud" in the sense of deceit but rather "prejudice" or "disadvantage." This mistranslation led to significant legal misunderstandings.
Glenos also points out that the principles of fraudulent transfer law persisted in American common law for centuries. In 1918, the Uniform Law Commission introduced the Uniform Fraudulent Conveyance Act (UFCA), which was enacted in 25 states. This was followed by the Uniform Fraudulent Transfer Act (UFTA) in 1984, adopted by 43 states, the District of Columbia, and the U.S. Virgin Islands. Alabama embraced the UFTA with modifications in 1989.
The impetus for the UFTA was to harmonize state laws with the federal Bankruptcy Code, enacted in 1978, which retained the "fraud" terminology. The misapplication of "fraudulent" in these legal contexts led to the erroneous interpretation that intent to deceive was necessary for fraudulent transfer claims, a notion the AUVTA seeks to correct.
As mentioned above, Glenos emphasizes that the term "fraudulent" misled courts into requiring plaintiffs to plead fraudulent intent, complicating cases where intent was irrelevant. The AUVTA replaces "fraudulent" with "voidable" to eliminate confusion and align legal interpretations with the law's original intent.
The AUVTA, like the AUFTA , includes four general types of voidable transactions:
Here, Glenos outlines the major revisions introduced by the AUVTA:
"Voidable" replaces "fraudulent" to clarify the Act's intent and discourage erroneous interpretations of intent requirements. The term "transaction" replaces "transfer" to encompass the incurrence of obligations by the debtor.
A new section establishes that the local law of the debtor's location at the time of transfer governs claims, providing a predictable choice of law rule.
The AUVTA clarifies that the burden of proof for claims and defenses is a "preponderance of the evidence," rejecting the heightened "clear and convincing evidence" standard. It also defines the burden allocation for various claims and defenses.
The AUVTA refines the definition of insolvency, stating a debtor is insolvent if their debts exceed their assets at fair valuation. It also removes a special definition for partnerships, applying the general insolvency definition to all debtors.
The AUVTA clarifies that for the reasonably equivalent value defense to apply, the reasonably equivalent value must be given to the debtor and not to a third-party. It also creates a defense for subsequent transferees who take in good faith and for value.
The AUVTA treats series organizations and each series within as separate persons for purposes of the act, closing a loophole that allowed transfers between series to evade scrutiny.
Alabama retained its existing statute of limitations and omitted language referring to "obligations," leaving this to common law.
Glenos concludes that the AUVTA's changes to the AUFTA help clear centuries of legal confusion and ensure a more accurate application of the law.
