First Regular Session Seventieth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 15-0669.01 Bart Miller x2173 HOUSE BILL 15-1253 HOUSE SPONSORSHIP Lee, Foote SENATE SPONSORSHIP (None), House Committees Senate Committees Business Affairs and Labor A BILL FOR AN ACT Concerning the enactment of amendments to the "Colorado Uniform Fraudulent Transfer Act" recommended by the uniform law commission, and, in connection therewith, changing the name of the "Colorado Uniform Fraudulent Transfer Act" to the "Colorado Uniform Voidable Transactions Act". Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) Colorado Commission on Uniform State Laws. In 2014 the Uniform Law Commission approved a set of amendments to the "Uniform Fraudulent Transfer Act" (act). The amendments changed the title of the act to the "Uniform Voidable Transactions Act". The amendment project was instituted to address a small number of narrowly defined issues and was not a comprehensive revision. The principal features of the amendments are: Choice of law. The amendments add a new provision that sets forth a choice of law rule applicable to claims for relief of the nature governed by the act. Evidentiary matters. New provisions add uniform rules allocating the burden of proof and defining the standard of proof with respect to claims for relief and defenses under the act. Deletion of the special definition of "insolvency" for partnerships. The act as originally written set forth a special definition of "insolvency" applicable to partnerships. The amendments delete the original language, with the result that the general definition of insolvency now applies to partnerships. One reason for this change is that the original provision gave a partnership full credit for the net worth of each of its general partners. That makes sense only if each general partner is liable for all debts of the partnership, but such is not necessarily the case under modern partnership statutes. A more fundamental reason is that the general definition of insolvency does not credit a nonpartnership debtor with any part of the net worth of its guarantors. To the extent that a general partner is liable for the debts of the partnership, that liability is analogous to that of a guarantor. There is no good reason to define insolvency differently for a partnership debtor than for a nonpartnership debtor whose debts are guaranteed by contract. Defenses. The amendments refine in relatively minor respects several provisions relating to defenses available to a transferee or obligee, as follows: As originally written, the act created a complete defense to an action for a fraudulent transfer (which renders voidable a transfer made or obligation incurred with actual intent to hinder, delay, or defraud any creditor of the debtor) if the transferee or obligee takes in good faith and for a reasonably equivalent value. The amendments add to the act the further requirement that the reasonably equivalent value must be given to the debtor. The act created, in a provision derived from the federal "Bankruptcy Code", a defense for a subsequent transferee (that is, a transferee other than the first transferee) that takes in good faith and for value, and for any subsequent good-faith transferee from a person. The amendments clarify the meaning of the defense by rewording it to follow more closely the wording of the federal "Bankruptcy Code", which is substantially unchanged as of 2014. Among other things, the amendments make clear that the defense applies to recovery of or from the transferred property or its proceeds, by levy or otherwise, as well as to an action for a money judgment. The act as originally written created a defense to an action for a fraudulent transfer or to avoid a transfer if the transfer results from enforcement of a security interest in compliance with the secured transactions provisions of the "Uniform Commercial Code". The amendments exclude from that defense acceptance of collateral in full or partial satisfaction of the obligation it secures (a remedy sometimes referred to as "strict foreclosure"). Series organizations. A new provision of the act provides that each "protected series" of a "series organization" is to be treated as a person for purposes of the act, even if it is not treated as a person for other purposes. This change responds to the emergence of the series organization as a significant form of business organization. Medium neutrality. In order to accommodate modern technology, the references in the act to a "writing" have been replaced with "record" and related changes made. Style. The amendments make a number of stylistic changes that are not intended to change the meaning of the act. For example, the amended act consistently uses the word "voidable" to denote a transfer or obligation for which the act provides a remedy. As originally written, the act sometimes inconsistently used the word "fraudulent". No change in meaning is intended. Likewise, the retitling of the act is not intended to change its meaning. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, amend 38-8-101 as follows: 38-8-101. Short title. This article, shall be known and may be which was formerly cited as the "Colorado Uniform Fraudulent Transfer Act", is known and may be cited as the "Colorado Uniform Voidable Transactions Act". SECTION 2. In Colorado Revised Statutes, 38-8-102, amend (1) (a) introductory portion, (1) (a) (II), (1) (b) introductory portion, (1) (b) (I), (1) (d), (3), and (10); and add (7.5), (9.5), (11.5), and (12.5) as follows: 38-8-102. Definitions. As used in this article, unless the context otherwise requires: (1) "Affiliate" means: (a) A person who that directly or indirectly owns, controls, or holds with power to vote twenty percent or more of the outstanding voting securities of the debtor, other than a person who that holds the securities: (II) Solely to secure a debt, if the person has not in fact exercised the power to vote; (b) A corporation, twenty percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor or a person who that directly or indirectly owns, controls, or holds with power to vote, twenty percent or more of the outstanding voting securities of the debtor, other than a person who that holds the securities: (I) As a fiduciary or agent without sole discretionary power to vote the securities; or (d) A person who that operates the debtor's business under a lease or other agreement or controls substantially all of the debtor's assets. (3) "Claim", except as used in "claim for relief", means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. (7.5) "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. (9.5) "Organization" means a person other than an individual. (10) "Person" means an individual, partnership, corporation, association, organization, government or governmental subdivision or agency, business trust, estate, business or nonprofit entity, public corporation, government or governmental subdivision, agency, or instrumentality, or other trust, or any other legal or commercial entity. (11.5) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. (12.5) "Sign" means, with present intent to authenticate or adopt a record: (a) To execute or adopt a tangible symbol; or (b) To attach to or logically associate with the record an electronic symbol, sound, or process. SECTION 3. In Colorado Revised Statutes, 38-8-103, amend (1) and (2); and repeal (3) as follows: 38-8-103. Insolvency. (1) A debtor is insolvent if, at a fair valuation, the sum of the debtor's debts is greater than all the sum of the debtor's assets. at a fair valuation. (2) A debtor who that is generally not paying his the debtor's debts as they become due other than as a result of a bona fide dispute is presumed to be insolvent. The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence. (3) A partnership is insolvent under subsection (1) of this section if the sum of the partnership's debts is greater than the aggregate of all of the partnership's assets, at a fair valuation, and the sum of the excess of the value of each general partner's nonpartnership assets over the partner's nonpartnership debts. SECTION 4. In Colorado Revised Statutes, 38-8-104, amend (2) as follows: 38-8-104. Value. (2) For the purposes of sections 38-8-105 38-8-105 (1) (b) and 38-8-106, a person gives a reasonably equivalent value if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, noncollusive sale, foreclosing on assets subject to a lien, or pursuant to the execution of a power of sale for the acquisition or disposition of the interest of the debtor upon default under a mortgage, deed of trust, or security agreement. SECTION 5. In Colorado Revised Statutes, 38-8-105, amend (1) introductory portion, (1) (b) (II), and (2) (k); and add (3) as follows: 38-8-105. Transfer or obligation voidable as to present or future creditor. (1) A transfer made or obligation incurred by a debtor is fraudulent voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (II) Intended to incur, or believed or reasonably should have believed that he the debtor would incur, debts beyond his the debtor's ability to pay as they became due. (2) In determining actual intent under paragraph (a) of subsection (1) of this section, consideration may be given, among other factors, to whether: (k) The debtor transferred the essential assets of the business to a lienor who that transferred the assets to an insider of the debtor. (3) A creditor making a claim for relief under subsection (1) of this section has the burden of proving the elements of the claim for relief by a preponderance of the evidence. SECTION 6. In Colorado Revised Statutes, amend 38-8-106 as follows: 38-8-106. Transfer or obligation voidable as to present creditor. (1) A transfer made or obligation incurred by a debtor is fraudulent voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. (2) A transfer made by a debtor is fraudulent voidable as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent. (3) Subject to section 38-8-103 (2), a creditor making a claim for relief under subsection (1) or (2) of this section has the burden of proving the elements of the claim for relief by a preponderance of the evidence. SECTION 7. In Colorado Revised Statutes, 38-8-107, amend (1) (a) (I), (4), and (5) (b) as follows: 38-8-107. When transfer is made or obligation is incurred. (1) For the purposes of this article: (a) A transfer is made: (I) With respect to an asset that is real property other than a fixture, but including the interest of a seller or purchaser under a contract for the sale of the asset, when the transfer is so far perfected that a good-faith purchaser of the asset from the debtor against whom which applicable law permits the transfer to be perfected cannot acquire an interest in the asset that is superior to the interest of the transferee; and (4) A transfer is not made until the debtor has acquired rights in the asset transferred; and (5) An obligation is incurred: (b) If evidenced by a writing record, when the writing executed record signed by the obligor is delivered to or for the benefit of the obligee. SECTION 8. In Colorado Revised Statutes, 38-8-108, amend (1) (b) and (1) (c) as follows: 38-8-108. Remedies of creditor. (1) In an action for relief against a transfer or obligation under this article, a creditor, subject to the limitations in section 38-8-109, may obtain: (b) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by the Colorado rules of civil procedure if available under applicable law; (c) With respect to a transfer made or obligation incurred that is fraudulent voidable under section 38-8-105 (1) (a), a judgment for one and one-half the value of the asset transferred or for one and one-half the amount necessary to satisfy the creditor's claim, whichever is less, together with the creditor's actual costs; except that any judgment entered against a person under this paragraph (c) is in lieu of, not in addition to, a judgment against the same person under section 38-8-109 (2). No judgment may be entered pursuant to this paragraph (c) against a person other than the debtor unless that person also acts with wrongful intent as defined in section 38-8-105 (1) (a); otherwise, judgment for money damages against a person other than the debtor may be entered only as provided in section 38-8-109. No judgment may be entered under this paragraph (c) unless a court of competent jurisdiction enters or has entered a judgment or order establishing the validity of the creditor's claim against the debtor. SECTION 9. In Colorado Revised Statutes, 38-8-109, amend (1), (2), (4) (a), (4) (b), (5) (b), and (6) (a); and add (7) and (8) as follows: 38-8-109. Defenses, liability, and protection of transferee or obligee. (1) A transfer or obligation is not voidable under section 38-8-105 (1) (a) against a person who that took in good faith and for a reasonably equivalent value given the debtor or against any subsequent transferee or obligee. (2) To the extent a transfer is avoidable in an action by a creditor under section 38-8-108 (1) (a), the following rules apply: (a) Except as otherwise provided in this section, to the extent a transfer is voidable in an action by a creditor under section 38-8-108 (1) (a), the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection (3) of this section, or the amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against: (a) (I) The first transferee of the asset or the person for whose benefit the transfer was made; or (b) (II) Any subsequent An immediate or mediate transferee of the first transferee, other than: (I) (A) good-faith transferee or obligee who that took for value; or from any subsequent transferee or obligee. (II) (B) An immediate or mediate good-faith transferee of a person described in sub-subparagraph (A) of this subparagraph (II). (b) Recovery pursuant to section 38-8-108 (1) (a) or (2) of or from the asset transferred or its proceeds, by levy or otherwise, is available only against a person described in subparagraph (I) or (II) of paragraph (a) of this subsection (2). (4) Notwithstanding voidability of a transfer or an obligation under this article, a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to: (a) A lien on or a right to retain any an interest in the asset transferred; (b) Enforcement of any an obligation incurred; or (5) A transfer is not voidable under section 38-8-105 (1) (b) or 38-8-106 if the transfer results from: (b) Enforcement of a security interest in compliance with the provisions of the "Uniform Commercial Code - Secured Transactions", article 9 of title 4, C.R.S., other than acceptance of collateral in full or partial satisfaction of the obligation it secures. (6) A transfer is not voidable under section 38-8-106 (2): (a) To the extent the insider gave new value to or for the benefit of the debtor after the transfer was made, unless except to the extent the new value was secured by a valid lien; (7) The following rules determine the burden of proving matters referred to in this section: (a) A party that seeks to invoke subsection (1), (4), (5), or (6) of this section has the burden of proving the applicability of that subsection. (b) Except as provided in paragraphs (c) and (d) of this subsection (7), the creditor has the burden of proving each applicable element of subsection (2) or (3) of this section. (c) The transferee has the burden of proving the applicability to the transferee of sub-subparagraph (A) or (B) of subparagraph (II) of paragraph (a) of this section. (d) A party that seeks adjustment under subsection (3) of this section has the burden of proving the adjustment. (8) The standard of proof required to establish matters referred to in this section is preponderance of the evidence. SECTION 10. In Colorado Revised Statutes, amend 38-8-110 as follows: 38-8-110. Extinguishment of claim for relief. (1) A cause of action claim for relief with respect to a fraudulent transfer or obligation under this article is extinguished unless action is brought: (a) Under section 38-8-105 (1) (a), within not later than four years after the transfer was made or the obligation was incurred or, if later, within not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant; (b) Under section 38-8-105 (1) (b) or 38-8-106 (1), within not later than four years after the transfer was made or the obligation was incurred; or (c) Under section 38-8-106 (2), within not later than one year after the transfer was made. or the obligation was incurred. SECTION 11. In Colorado Revised Statutes, add 38-8-110.3, 38-8-110.5, and 38-8-113 as follows: 38-8-110.3. Governing law. (1) In this section, the following rules determine a debtor's location: (a) A debtor who is an individual is located at the individual's principal residence. (b) A debtor that is an organization and has only one place of business is located at its place of business. (c) A debtor that is an organization and has more than one place of business is located at its chief executive office. (2) A claim for relief in the nature of a claim for relief under this article is governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred. 38-8-110.5. Application to series organizations - definitions. (1) In this section: (a) "Protected series" means an arrangement, however denominated, created by a series organization that, pursuant to the law under which the series organization is organized, has the characteristics set forth in this section. (b) "Series organization" means an organization that, pursuant to the law under which it is organized, has the following characteristics: (I) The organic record of the organization provides for creation by the organization of one or more protected series, however denominated, with respect to specified property of the organization, and for records to be maintained for each protected series that identify the property of or associated with the protected series. (II) Debt incurred or existing with respect to the activities of, property of, or associated with, a particular protected series is enforceable against the property of, or associated with, the protected series only and not against the property of, or associated with, the organization or other protected series of the organization. (III) Debt incurred or existing with respect to the activities or property of the organization is enforceable against the property of the organization only and not against the property of, or associated with a protected series of, the organization. A series organization and each protected series of the organization is a separate person for purposes of this article, even if for other purposes a protected series is not a person separate from the organization or other protected series of the organization. (2) A series organization and each protected series of the organization is a separate person for purposes of this article, even if for other purposes a protected series is not a person separate from the organization or other protected series of the organization. (3) This section does not authorize the formation or creation of a series organization pursuant to Colorado law. 38-8-113. Relation to electronic signatures in federal "Electronic Signatures in Global and National Commerce Act". This article modifies, limits, or supersedes the federal "Electronic Signatures in Global and National Commerce Act", 15 U.S.C. sec. 7001 et seq., but does not modify, limit, or supersede section 101 (c) of that act, 15 U.S.C. sec. 7001 (c), or authorize electronic delivery of any of the notices described in section 103 (b) of that act, 15 U.S.C. sec. 7003 (b). SECTION 12. In Colorado Revised Statutes, 2-5-102, amend (7) as follows: 2-5-102. Inclusions - nonstatutory. (7) There shall be included in the publication of the "Colorado Uniform Fraudulent Transfer Act" "Colorado Uniform Voidable Transactions Act", as nonstatutory matter, following each section of the article, the full text of the official comments to that section contained in the official volume containing the 1984 official text of the "Uniform Fraudulent Transfer Act" "Colorado Uniform Voidable Transactions Act" issued by the national conference of commissioners on uniform state laws, including changes to the official comments made by the 2014 amendments to the uniform act, with any changes in the official comments or Colorado comments to correspond to Colorado changes in the uniform act. The comments shall be prepared by the revisor of statutes and approved for publication by the committee on legal services. SECTION 13. Act subject to petition - effective date. This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 5, 2015, if adjournment sine die is on May 6, 2015); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2016 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.