COMMITTEE ON RULES AND JUDICIARY

BILL NO. 29-0044

Twenty-Ninth Legislature of the Virgin Islands

March 18, 2011

An Act repealing and reenacting title 28 Virgin Islands Code, chapter 9 to enact the

Virgin Islands Uniform Fraudulent Transfer Act

PROPOSED BY:

Senator Shawn-Michael Malone

Be it enacted by the Legislature of the Virgin Islands: 1

SECTION 1. Title 28 Virgin Islands Code, chapter 9 is repealed and reenacted 2

with amendments that read as follows: 3

“CHAPTER 9 VIRGIN ISLANDS UNIFORM FRADULENT TRANSFER 4

ACT 5

§171. DEFINITIONS As used in this chapter: 6

(1) "Affiliate" means a person who directly or indirectly owns, controls, or 7

holds with power to vote, 20 percent or more of the outstanding voting securities of the 8

debtor, other than a person who holds the securities; 9

(i) as a fiduciary or agent without sole discretionary power to vote the 10

securities; or 11

12

2

(ii) solely to secure a debt, if the person has not exercised the power to 1

vote; 2

(A) a corporation 20 percent or more of whose outstanding 3

voting securities are directly or indirectly owned, controlled, or held with 4

power to vote, by the debtor or a person who directly or indirectly owns, 5

controls, or holds with power to vote, 20 percent or more of the 6

outstanding voting securities of the debtor, other than a person who holds 7

the securities, 8

(i) as a fiduciary or agent without sole power to vote 9

the securities; or 10

(ii) solely to secure a debt, if the person has not in fact 11

exercised the power to vote; 12

(B) a person whose business is operated by the debtor under a 13

lease or other agreement, or a person substantially all of whose assets are 14

controlled by the debtor; or 15

(C) a person who operates the debtor's business under a lease or 16

other agreement or controls substantially all of the debtor's assets. 17

(2) "Asset" means property of a debtor, but the term does not include: 18

(A) property to the extent it is encumbered by a valid lien; 19

(B) property to the extent it is generally exempt under 20

nonbankruptcy law; or 21

(C) an interest in property held in tenancy by the entireties to 22

the extent it is not subject to process by a creditor holding a claim against 23

only one tenant. 24

3

(3) "Claim" means a right to payment, whether or not the right is reduced to 1

judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, 2

undisputed, legal, equitable, secured, or unsecured. 3

(4) "Creditor" means a person who has a claim. 4

(5) "Debt" means liability on a claim. 5

(6) "Debtor" means a person who is liable on a claim. 6

(7) "Insider" includes: 7

(A) if the debtor is an individual, 8

(i) a relative of the debtor or of a general partner of the debtor; 9

(ii) a partnership in which the debtor is a general partner; 10

(iii) a general partner in a partnership described in clause (ii); or 11

(iv) a corporation of which the debtor is a director, officer, or 12

person in control; 13

(B) if the debtor is a corporation, 14

(i) a director of the debtor; 15

(ii) an officer of the debtor; 16

(iii) a person in control of the debtor; 17

(iv) a partnership in which the debtor is a general partner; 18

(v) a general partner in a partnership described in clause (iv); 19

or 20

(vi) a relative of a general partner, director, officer, or person in 21

control of the debtor; 22

(C) if the debtor is a partnership, 23

(i) a general partner in the debtor; 24

(ii) a relative of a general partner in, or a general partner of, or 25

a person in control of the debtor; 26

4

(iii) another partnership in which the debtor is a general partner; 1

(iv) a general partner in a partnership described in clause (iii); 2

or 3

(v) a person in control of the debtor; 4

(D) an affiliate, or an insider of an affiliate as if the affiliate were the 5

debtor; and 6

(E) a managing agent of the debtor. 7

(8) "Lien" means a charge against or an interest in property to secure payment 8

of a debt or performance of an obligation, and includes a security interest created by 9

agreement, a judicial lien obtained by legal or equitable process or proceedings, a 10

common-law lien, or a statutory lien. 11

(9) "Person" means an individual, partnership, corporation, association, 12

organization, government or governmental subdivision or agency, business trust, estate, 13

trust, or any other legal or commercial entity. 14

(10) "Property" means anything that may be the subject of ownership. 15

(11) "Relative" means an individual related by consanguinity within the third 16

degree as determined by the common law, a spouse, or an individual related to a spouse 17

within the third degree as so determined, and includes an individual in an adoptive 18

relationship within the third degree. 19

(12) "Transfer" means every mode, direct or indirect, absolute or conditional, 20

voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, 21

and includes payment of money, release, lease, and creation of a lien or other 22

encumbrance. 23

(13) "Valid lien" means a lien that is effective against the holder of a judicial 24

lien subsequently obtained by legal or equitable process or proceedings. 25

26

5

§172. INSOLVENCY 1

(a) A debtor is insolvent if the sum of the debtor's debts is greater than all of 2

the debtor's assets, at a fair valuation. 3

(b) A debtor who is generally not paying debts as they become due is 4

presumed to be insolvent. 5

(c) A partnership is insolvent under subsection (a) if the sum of the 6

partnership's debts is greater than the aggregate of all of the partnership's assets, at a fair 7

valuation, and the sum of the excess of the value of each general partner's nonpartnership 8

assets over the partner's nonpartnership debts. 9

(d) Assets under this section do not include property that has been transferred, 10

concealed, or removed with intent to hinder, delay, or defraud creditors or that has been 11

transferred in a manner making the transfer voidable under this chapter. 12

(e) Debts under this section do not include an obligation to the extent it is 13

secured by a valid lien on property of the debtor not included as an asset. 14

§173. VALUE 15

(a) Value is given for a transfer or an obligation if, in exchange for the 16

transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, 17

but value does not include an unperformed promise made otherwise than in the ordinary 18

course of the promisor's business to furnish support to the debtor or another person. 19

(b) For the purposes of sections 174(a) (2) and 175, a person gives a 20

reasonably equivalent value if the person acquires an interest of the debtor in an asset 21

pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power 22

of sale for the acquisition or disposition of the interest of the debtor upon default under a 23

mortgage, deed of trust, or security agreement. 24

6

(c) A transfer is made for present value if the exchange between the debtor 1

and the transferee is intended by them to be contemporaneous and is in fact substantially 2

contemporaneous. 3

§174. TRANSFERS FRAUDULENT AS TO PRESENT AND 4

FUTURECREDITORS 5

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a 6

creditor, whether the creditor's claim arose before or after the transfer was made or the 7

obligation was incurred, if the debtor made the transfer or incurred the obligation: 8

(1) with actual intent to hinder, delay, or defraud any creditor of the 9

debtor; or 10

(2) without receiving a reasonably equivalent value in exchange for 11

the transfer or obligation, and the debtor: 12

(A) was engaged or was about to engage in a business or a 13

transaction for which the remaining assets of the debtor were unreasonably 14

small in relation to the business or transaction; or 15

(B) intended to incur, or believed or reasonably should have 16

believed that he would incur, debts beyond his ability to pay as they 17

became due. 18

(b) In determining actual intent under subsection (a) (1), consideration may be 19

given, among other factors, to whether: 20

(1) the transfer or obligation was to an insider; 21

(2) the debtor retained possession or control of the property transferred 22

after the transfer; 23

(3) the transfer or obligation was disclosed or concealed; 24

(4) before the transfer was made or obligation was incurred, the debtor 25

had been sued or threatened with suit; 26

7

(5) the transfer was of substantially all the debtor's assets; 1

(6) the debtor absconded; 2

(7) the debtor removed or concealed assets; 3

(8) the value of the consideration received by the debtor was 4

reasonably equivalent to the value of the asset transferred or the amount of the 5

obligation incurred; 6

(9) the debtor was insolvent or became insolvent shortly after the 7

transfer was made or the obligation was incurred; 8

(10) the transfer occurred shortly before or shortly after a substantial 9

debt was incurred; and 10

(11) the debtor transferred the essential assets of the business to a lienor 11

who transferred the assets to an insider of the debtor. 12

§175. TRANSFERS FRAUDULENT AS TO PRESENT CREDITORS 13

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a 14

creditor whose claim arose before the transfer was made or the obligation was incurred if 15

the debtor made the transfer or incurred the obligation without receiving a reasonably 16

equivalent value in exchange for the transfer or obligation and the debtor was insolvent at 17

that time or the debtor became insolvent as a result of the transfer or obligation. 18

(b) A transfer made by a debtor is fraudulent as to a creditor whose claim 19

arose before the transfer was made if the transfer was made to an insider for an 20

antecedent debt, the debtor was insolvent at that time, and the insider had reasonable 21

cause to believe that the debtor was insolvent. 22

§176. WHEN TRANSFER IS MADE OR OBLIGATION IS INCURRED 23

For the purposes of this chapter: 24

(1) a transfer is made: 25

8

(A) with respect to an asset that is real property other than a fixture, but 1

including the interest of a seller or purchaser under a contract for the sale of the 2

asset, when the transfer is so far perfected that a good-faith purchaser of the asset 3

from the debtor against whom applicable law permits the transfer to be perfected 4

cannot acquire an interest in the asset that is superior to the interest of the 5

transferee; and 6

(B) with respect to an asset that is not real property or that is a fixture, 7

when the transfer is so far perfected that a creditor on a simple contract cannot 8

acquire a judicial lien otherwise than under this chapter that is superior to the 9

interest of the transferee; 10

(2) if applicable law permits the transfer to be perfected as provided in 11

paragraph (1) and the transfer is not so perfected before the commencement of an action 12

for relief under this chapter , the transfer is deemed made immediately before the 13

commencement of the action; 14

(3) if applicable law does not permit the transfer to be perfected as provided 15

in paragraph (1), the transfer is made when it becomes effective between the debtor and 16

the transferee; 17

(4) a transfer is not made until the debtor has acquired rights in the asset 18

transferred; 19

(5) an obligation is incurred: 20

(A) if oral, when it becomes effective between the parties; or 21

(B) if evidenced by writing, when the writing executed by the obligor 22

is delivered to or for the benefit of the obligee. 23

§177. REMEDIES OF CREDITORS 24

(a) In an action for relief against a transfer or obligation under this chapter a 25

creditor, subject to the limitations in section 178, may obtain: 26

9

(1) avoidance of the transfer or obligation to the extent necessary to 1

satisfy the creditor's claim; 2

(2) an attachment or other provisional remedy against the asset 3

transferred or other property of the transferee in accordance with the procedure 4

prescribed by title 5 Virgin Islands Code, chapter 25; 5

(3) subject to applicable principles of equity and in accordance with 6

applicable rules of civil procedure: 7

(A) an injunction against further disposition by the debtor or a 8

transferee, or both, of the asset transferred or of other property; 9

(B) appointment of a receiver to take charge of the asset 10

transferred or of other property of the transferee; or 11

(C) any other relief the circumstances may require. 12

(b) If a creditor has obtained a judgment on a claim against the debtor, the 13

creditor, if the court so orders, may levy execution on the asset transferred or its 14

proceeds. 15

§178. DEFENSES, LIABILITY, AND PROTECTION OF TRANSFEREE 16

(a) A transfer or obligation is not voidable under section 174(a) (1) against a 17

person who took in good faith and for a reasonably equivalent value or against any 18

subsequent transferee or obligee. 19

(b) Except as otherwise provided in this section, to the extent a transfer is 20

voidable in an action by a creditor under section 177(a)(1), the creditor may recover 21

judgment for the value of the asset transferred, as adjusted under subsection (c), or the 22

amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be 23

entered against: 24

(1) the first transferee of the asset or the person for whose benefit the 25

transfer was made; or 26

10

(2) any subsequent transferee other than a good-faith transferee or 1

obligee who took for value or from any subsequent transferee or obligee. 2

(c) If the judgment under subsection (b) is based upon the value of the asset 3

transferred, the judgment must be for an amount equal to the value of the asset at the time 4

of the transfer, subject to adjustment as the equities may require. 5

(d) Notwithstanding voidability of a transfer or an obligation under this 6

chapter, a good-faith transferee or obligee is entitled, to the extent of the value given the 7

debtor for the transfer or obligation, to: 8

(1) a lien on or a right to retain any interest in the asset transferred; 9

(2) enforcement of any obligation incurred; or 10

(3) a reduction in the amount of the liability on the judgment. 11

(e) A transfer is not voidable under section 174(a) (2) or section 175 if the 12

transfer results from: 13

(1) termination of a lease upon default by the debtor when the 14

termination is pursuant to the lease and applicable law; or 15

(2) enforcement of a security interest in compliance with Article 9 of 16

the Uniform Commercial Code. 17

(f) A transfer is not voidable under section 175(b): 18

(1) to the extent the insider gave new value to or for the benefit of the 19

debtor after the transfer was made unless the new value was secured by a valid 20

lien; 21

(2) if made in the ordinary course of business or financial affairs of the 22

debtor and the insider; or 23

(3) if made pursuant to a good-faith effort to rehabilitate the debtor 24

and the transfer secured present value given for that purpose as well as an 25

antecedent debt of the debtor. 26

11

§179. EXTINGUISHMENT CAUSE OF ACTION 1

A cause of action with respect to a fraudulent transfer or obligation under this 2

chapter is extinguished unless action is brought: 3

(a) under section 174(a)(1), within four years after the transfer was made or 4

the obligation was incurred or, if later, within one year after the transfer or obligation was 5

or could reasonably have been discovered by the claimant; 6

(b) under Section 174(a)(2) or 175(a), within four years after the transfer was 7

made or the obligation was incurred; or 8

(c) under Section 175(b), within one year after the transfer was made or the 9

obligation was incurred. 10

§180. SUPPLEMENTARY PROVISIONS 11

Unless displaced by this chapter, the principles of law and equity, including the 12

law merchant and the law relating to principal and agent, estoppels, laces, fraud, 13

misrepresentation, duress, coercion, mistake, insolvency, or other validating or 14

invalidating cause, supplement its provisions. 15

§ 181. UNIFORMITY OF APPLICATION AND CONSTRUCTION 16

This chapter must be applied and construed to effectuate its general purpose to 17

make uniform the law with respect to the subject of this chapter among states enacting it. 18

§182. [SHORT TITLE] 19

This chapter may be cited as “The Virgin Islands Uniform Fraudulent 20

Conveyances Act”. 21

SECTION 2. This Act takes effect 30 days after enactment. 22

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BILL SUMMARY 1

This proposed uniform law was passed during the 28TH

Legislature but was 2

vetoed by the Governor on August 20, 2010. The Governor in his veto message said that 3

he had vetoed the bill, because it attempted to amend non-existent code provisions. 4

However, actually the only error was that the title of the bill, which is not part of the law, 5

had an internal reference to the wrong chapter being amended. That reference in the body 6

of the bill was correct. However, there were also a few internal references to sections 7

which were incorrect. 8

9

The bill was corrected during the latter part of the term of the 28TH

Legislature, 10

but the Legislature adjourned before it could be considered on the floor. 11

12

All of the corrections have been made, and therefore this bill should be approved 13

by the Governor upon present, especially since he said in his veto message: “Again I am 14

in favor of the adoption of this Act, which seeks to prevent fraudulent conveyances 15

[transfers] in the Territory”. 16

17

The National Conference of Commissioners on Uniform State Laws in adopting 18

this uniform law explained the history and purposes of this uniform law as follows: 19

20

“The National Conference of Commissioners on Uniform State Laws proposed 21

the Uniform Fraudulent Conveyance Act in 1918. It was enacted to supersede the Statute 22

of 13 Elizabeth which was enacted in some form by many states, and which introduced 23

the concept of the fraudulent conveyance into the law of every American jurisdiction, 24

with or without enactment. The Uniform Fraudulent Conveyances Act was adopted in 26 25

states, [including the Virgin Islands] and its provisions were incorporated into the 26

Federal Bankruptcy Act… (According to the revision Notes that appear in title 28 chapter 27

9, the Uniform Fraudulent Conveyances Act appeared in the 1921 Codes of the Virgin 28

Islands). 29

30

In 1984, this 1918 Act was revised and renamed the Uniform Fraudulent Transfer 31

Act. The intent of the Uniform Fraudulent Transfer Act is the same as the Uniform 32

Fraudulent Conveyances Act - it classifies a category of transfers as fraudulent to 33

creditors and provides creditors with a remedy for such transfers. The fundamental 34

remedy is the recovery of the property for the creditor. Why did the ULC promulgate a 35

new Act? The terminology of the UFCA had become considerably archaic, and needed to 36

be modernized. The Bankruptcy Reform Act of 1978 changed the federal law on 37

fraudulent transfers in significant ways, and made it imperative to reconsider state law 38

and creditor-debtor relationships have changed and become more complicated, so that the 39

whole issue of fraudulent transfers needed rethinking.” 40

41

This bill repeals the Virgin Islands Fraudulent Conveyances Act for the reasons 42

the ULC expressed above. This bill therefore, repeals and reenacts title 28, chapter 9 of 43

the Virgin Islands Code for the purpose of modernizing the archaic legislation still used 44

in the Virgin Islands. 45

46

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48

49

13

Much of the Uniform Fraudulent Conveyances Act resembles the Uniform 1

Fraudulent Conveyance Act, its predecessor. One of the differences between the two 2

acts is the term "transfer" taken from the Federal Bankruptcy Act replaces the term 3

"conveyance." The concept of the "insider" is new in the Uniform Fraudulent Transfer 4

Act. The Uniform Fraudulent Transfer Act provides for defenses of transferees and for a 5

statute of limitations. Both issues are not addressed under the existing law. 6

7

This bill creates a right of action for any creditor against any debtor and any other 8

person who has received property from the debtor in a fraudulent transfer. A fraudulent 9

transfer occurs when a debtor intends to hinder, delay, or defraud a creditor, or transfers 10

property under certain conditions to another person without receiving reasonably 11

equivalent value in return. But not all such transfers are fraudulent to every creditor. 12

13

This bill distinguishes between present and future creditors, and specifies the Present 14

creditors, however, can recover property when it is transferred by a debtor to another 15

person without receiving reasonably equivalent value if the debtor is insolvent or 16

becomes insolvent as a result of the transfer. A transfer to an "insider" without receiving 17

reasonably equivalent value when the debtor is insolvent is also fraudulent to present 18

creditors. The term "insider" is defined in internal section 171 of the bill, and is someone 19

with a special relationship to the debtor. Examples are relatives or business partners 20

(when the debtor is a partner). To be liable, an "insider" must have reasonable cause to 21

believe that the debtor is insolvent. 22

23

The fundamental relief for a creditor when there is a fraudulent transfer is 24

recovery of the property from the person to whom it has been transferred. This bill 25

allows avoidance of the transfer or obligation to the extent necessary to satisfy the 26

creditor's claim. “Whatever is necessary to obtain the property is provided for, including 27

attachment, injunctive relief, appointment of a receiver, or any other relief the 28

circumstances may require. If the creditor has reduced the claim to a judgment, the court 29

may levy execution against the recovered assets. This means that the property can be 30

sold to satisfy the amount of the judgment. 31

32

The enactment of this bill is intended to work as a deterrent, preventing fraudulent 33

behavior against obligations incurred, and protects creditors and provides them with a 34

remedy when debtors transfer or hide assets that would otherwise be available to satisfy 35

legitimate debts. 36

37

The policy underlying this bill is the recognition of the essential and vital role 38

credit plays in today’s society. The sponsor of the bill asserts that credit is essential to the 39

economic life of the Virgin Islands as well as to the whole country. The bill intends to 40

ensure that credit remains available in the Virgin Islands by protecting those who extend 41

credit in the Territory. The bill is intended to provide assurances concerning creditors’ 42

rights and remedies when debtors default. 43

44

The National Conference of Uniform State has stated that because credit is the 45

economic life force in America, it is important that there be uniformity in the law. 46

Without uniformity credit becomes less available. This why the following states have 47

adopted the Uniform Fraudulent Transfer Act: Alabama, Arizona, Arkansas, California, 48

Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, 49

Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, 50

Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New 51

14

Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode 1

Island, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, 2

Wisconsin, and Wyoming . 3

4

Internal section 171 sets forth the important definitions used throughout the bill. 5

Several of the definitions, such as “affiliate”, “claim”, “debt”, “insider”, “relative” and 6

“transfer”, are derived from the Bankruptcy Code. The definitions for “asset” and 7

“creditor” are taken straight from the Uniform Fraudulent Conveyance Act. 8

9

Internal section 172 governs the determination of when a debtor is considered 10

insolvent. The whole section is derived from the Bankruptcy Code. 11

12

Internal section 173 defines “value” as used in various contexts within the bill. 13

This section is adapted from § 548(d) (2) (A) of the Bankruptcy Code. 14

15

Internal section 174 is taken from the existing law under the existing Fraudulent 16

Conveyance Act. The section governs when a transfer is fraudulent to a present and 17

future creditors when certain outcomes are intended Subsection (b) of that section sets 18

forth to be considered when determining intent under subsection (a) (1). 19

20

Internal section 175 fraudulent transfer as to present creditors. It is taken from the 21

existing Act and limits protection to a creditor whose claim arose before the transfer if 22

the debtor made the transfer or incurred the liability without receiving reasonably 23

equivalent value and the debtor was insolvent at the time. 24

25

Section 176 governs when the transfer is made or the obligation is incurred with 26

respect to real property and with respect to property that is not real property. This is for 27

purposes of determining when the cause of cause of action arises against the debtor. 28

Internal section 177 governs remedies of creditors who are victims of fraudulent 29

transfers. The section is derived from §§ 209 and 210 of the existing Virgin Islands 30

Uniform Fraudulent Conveyance Act. Section 209 of title 28 specified the remedies of 31

creditors whose claims have matured, and § 210 enumerated the remedies available to 32

creditors whose claims have not matured. The remedies specified in this section are not 33

exclusive. 34

Section 178 governs defenses, liability and protection of the transferee. Section 35

179 governs the extinguishment of a cause of action. It sets forth a statute of limitations 36

of court actions with respect to a fraudulent transfer or obligation. 37

Internal sections 180, 181 and 182 are standard provisions found in most uniform 38

acts. Section 182 sets forth the short title of the proposed act. 39

Section 2 sets forth the effective date of the statute as 30 days after enactment for 40

purposes of notice and transition. 41

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BR11-0553/March 4, 2011/YLT 44 45 46