Minnesota Session Laws - 1987, Regular Session

  

                         Laws of Minnesota 1987 

                         CHAPTER 19-S.F.No. 97 
           An act relating to frauds; fixing conditions for the 
          legal determination of fraud in property transfers; 
          enacting the uniform fraudulent transfer act; 
          proposing coding for new law in Minnesota Statutes, 
          chapter 513; repealing Minnesota Statutes 1986, 
          sections 513.20; 513.21; 513.22; 513.23; 513.24; 
          513.25; 513.26; 513.27; 513.28; 513.29; 513.30; 
          513.31; and 513.32. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  [513.41] [DEFINITIONS.] 
    As used in this act:  
    (1) "Affiliate" means: 
    (i) a person who directly or indirectly owns, controls, or 
holds with power to vote, 20 percent or more of the outstanding 
voting securities of the debtor, other than a person who holds 
the securities, 
    (A) as a fiduciary or agent without sole discretionary 
power to vote the securities; or 
    (B) solely to secure a debt, if the person has not 
exercised the power to vote; 
    (ii) a corporation 20 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 
directly or indirectly owns, controls, or holds with power to 
vote, 20 percent or more of the outstanding voting securities of 
the debtor, other than a person who holds the securities, 
     (A) as a fiduciary or agent without sole power to vote the 
securities; or 
     (B) solely to secure a debt, if the person has not in fact 
exercised the power to vote; 
     (iii) a person whose business is operated by the debtor 
under a lease or other agreement, or a person substantially all 
of whose assets are controlled by the debtor; or 
     (iv) a person who operates the debtor's business under a 
lease or other agreement or controls substantially all of the 
debtor's assets. 
     (2) "Asset" means property of a debtor, but the term does 
not include: 
     (i) property to the extent it is encumbered by a valid lien;
     (ii) property to the extent it is generally exempt under 
nonbankruptcy law; or 
     (iii) an interest in property held in tenancy by the 
entireties to the extent it is not subject to process by a 
creditor holding a claim against only one tenant. 
     (3) "Claim" 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.  
     (4) "Creditor" means a person who has a claim. 
    (5) "Debt" means liability on a claim. 
    (6) "Debtor" means a person who is liable on a claim. 
    (7) "Insider" includes: 
    (i) if the debtor is an individual, 
    (A) a relative of the debtor or of a general partner of the 
debtor; 
    (B) a partnership in which the debtor is a general partner; 
    (C) a general partner in a partnership described in clause 
(B); or 
    (D) a corporation of which the debtor is a director, 
officer, or a person in control; 
    (ii) if the debtor is a corporation, 
    (A) a director of the debtor; 
    (B) an officer of the debtor; 
    (C) a person in control of the debtor; 
    (D) a partnership in which the debtor is a general partner; 
    (E) a general partner in a partnership described in clause 
(D); or 
    (F) a relative of a general partner, director, officer, or 
person in control of the debtor; 
    (iii) if the debtor is a partnership, 
    (A) a general partner in the debtor; 
    (B) a relative of a general partner in, or a general 
partner of, or a person in control of the debtor; 
    (C) another partnership in which the debtor is a general 
partner; 
    (D) a general partner in a partnership described in clause 
(C); or 
    (E) a person in control of the debtor; 
    (iv) an affiliate, or an insider of an affiliate as if the 
affiliate were the debtor; and 
    (v) a managing agent of the debtor. 
    (8) "Lien" means a charge against or an interest in 
property to secure payment of a debt or performance of an 
obligation, and includes a security interest created by 
agreement, a judicial lien obtained by legal or equitable 
process or proceedings, a common-law lien, or a statutory lien. 
    (9) "Person" means an individual, partnership, corporation, 
association, organization, government or governmental 
subdivision or agency, business trust, estate, trust, or any 
other legal or commercial entity. 
    (10) "Property" means anything that may be subject of 
ownership. 
    (11) "Relative" means an individual related by 
consanguinity within the third degree as determined by the 
common law, a spouse, or an individual related to a spouse 
within the third degree as so determined, and includes an 
individual in an adoptive relationship within the third degree. 
    (12) "Transfer" means every mode, direct or indirect, 
absolute or conditional, voluntary or involuntary, of disposing 
of or parting with an asset or an interest in an asset, and 
includes payment of money, release, lease, and creation of a 
lien or other encumbrance. 
    (13) "Valid lien" means a lien that is effective against 
the holder of a judicial lien subsequently obtained by legal or 
equitable process or proceedings. 
    Sec. 2.  [513.42] [INSOLVENCY.] 
    (a) A debtor is insolvent if the sum of the debtor's debts 
is greater than all of the debtor's assets, at a fair valuation. 
    (b) A debtor who is generally not paying his or her debts 
as they become due is presumed to be insolvent. 
    (c) A partnership is insolvent under subsection (a) if the 
sum of the partnership's debts is greater than the aggregate, at 
a fair valuation, of all of the partnership's assets and the sum 
of the excess of the value of each general partner's 
nonpartnership assets over the partner's nonpartnership debts. 
    (d) Assets under this section do not include property that 
has been transferred, concealed, or removed with intent to 
hinder, delay, or defraud creditors or that has been transferred 
in a manner making the transfer voidable under this act. 
    (e) Debts under this section do not include an obligation 
to the extent it is secured by a valid lien on property of the 
debtor not included as an asset. 
    Sec. 3.  [513.43] [VALUE.] 
    (a) Value is given for a transfer or an obligation if, in 
exchange for the transfer or obligation, property is transferred 
or an antecedent debt is secured or satisfied, but value does 
not include an unperformed promise made otherwise than in the 
ordinary course of the promisor's business to furnish support to 
the debtor or another person. 
    (b) For the purposes of sections 4(a)(2) and 5, 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 foreclosure sale or 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. 
    (c) A transfer is made for present value if the exchange 
between the debtor and the transferee is intended by them to be 
contemporaneous and is in fact substantially contemporaneous. 
    Sec. 4.  [513.44] [TRANSFERS FRAUDULENT AS TO PRESENT AND 
FUTURE CREDITORS.] 
    (a) A transfer made or obligation incurred by a debtor is 
fraudulent 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: 
    (1) with actual intent to hinder, delay, or defraud any 
creditor of the debtor; or 
     (2) without receiving a reasonably equivalent value in 
exchange for the transfer or obligation, and the debtor: 
     (i) was engaged or was about to engage in a business or a 
transaction for which the remaining assets of the debtor were 
unreasonably small in relation to the business or transaction; 
or 
     (ii) intended to incur, or believed or reasonably should 
have believed that he or she would incur, debts beyond his or 
her ability to pay as they became due. 
     (b) In determining actual intent under subsection (a)(1), 
consideration may be given, among other factors, to whether:  
     (1) the transfer or obligation was to an insider; 
     (2) the debtor retained possession or control of the 
property transferred after the transfer; 
     (3) the transfer or obligation was disclosed or concealed; 
     (4) before the transfer was made or obligation was 
incurred, the debtor had been sued or threatened with suit; 
     (5) the transfer was of substantially all the debtor's 
assets; 
     (6) the debtor absconded; 
     (7) the debtor removed or concealed assets; 
     (8) the value of the consideration received by the debtor 
was reasonably equivalent to the value of the asset transferred 
or the amount of the obligation incurred; 
    (9) the debtor was insolvent or became insolvent shortly 
after the transfer was made or the obligation was incurred; 
    (10) the transfer occurred shortly before or shortly after 
a substantial debt was incurred; and 
    (11) the debtor transferred the essential assets of the 
business to a lienor who transferred the assets to an insider of 
the debtor. 
    Sec. 5.  [513.45] [TRANSFERS FRAUDULENT AS TO PRESENT 
CREDITORS.] 
    (a) A transfer made or obligation incurred by a debtor is 
fraudulent 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. 
    (b) A transfer made by a debtor is fraudulent 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. 
    Sec. 6.  [513.46] [WHEN TRANSFER IS MADE OR OBLIGATION IS 
INCURRED.] 
    For the purposes of this act: 
    (1) 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 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 
    (ii) with respect to an asset that is not real property or 
that is a fixture, when the transfer is so far perfected that a 
creditor on a simple contract cannot acquire a judicial lien 
otherwise than under this act that is superior to the interest 
of the transferee; 
    (2) if applicable law permits the transfer to be perfected 
as provided in paragraph (1) and the transfer is not so 
perfected before the commencement of an action for relief under 
this act, the transfer is deemed made immediately before the 
commencement of the action; 
    (3) if applicable law does not permit the transfer to be 
perfected as provided in paragraph (1), the transfer is made 
when it becomes effective between the debtor and the transferee; 
     (4) a transfer is not made until the debtor has acquired 
rights in the asset transferred; 
    (5) an obligation is incurred: 
    (i) if oral, when it becomes effective between the parties; 
or 
     (ii) if evidenced by a writing, when the writing executed 
by the obligor is delivered to or for the benefit of the obligee.
    Sec. 7.  [513.47] [REMEDIES OF CREDITORS.] 
    (a) In an action for relief against a transfer or 
obligation under this act, a creditor, subject to the 
limitations in section 8, may obtain: 
    (1) avoidance of the transfer or obligation to the extent 
necessary to satisfy the creditor's claim; 
    (2) an attachment or other provisional remedy against the 
asset transferred or other property of the transferee in 
accordance with the procedure prescribed by Minnesota Statutes, 
chapter 570; 
    (3) subject to applicable principles of equity and in 
accordance with applicable rules of civil procedure: 
    (i) an injunction against further disposition by the debtor 
or a transferee, or both, of the asset transferred or of other 
property; 
    (ii) appointment of a receiver to take charge of the asset 
transferred or of other property of the transferee; or 
    (iii) any other relief the circumstances may require. 
    (b) If a creditor has obtained a judgment on a claim 
against the debtor, the creditor, if the court so orders, may 
levy execution on the asset transferred or its proceeds. 
    Sec. 8.  [513.48] [DEFENSES, LIABILITY, AND PROTECTION OF 
TRANSFEREE.] 
     (a) A transfer or obligation is not voidable under section 
4(a)(1) against a person who took in good faith and for a 
reasonably equivalent value or against any subsequent transferee 
or obligee. 
    (b) Except as otherwise provided in this section, to the 
extent a transfer is voidable in an action by a creditor under 
section 7(a)(1), the creditor may recover judgment for the value 
of the asset transferred, as adjusted under subsection (c), or 
the amount necessary to satisfy the creditor's claim, whichever 
is less.  The judgment may be entered against: 
    (1) the first transferee of the asset or the person for 
whose benefit the transfer was made; or 
    (2) any subsequent transferee other than a good-faith 
transferee who took for value or from any subsequent transferee. 
    (c) If the judgment under subsection (b) is based upon the 
value of the asset transferred, the judgment must be for an 
amount equal to the value of the asset at the time of the 
transfer, subject to adjustment as the equities may require. 
    (d) Notwithstanding voidability of a transfer or an 
obligation under this act, a good-faith transferee or obligee is 
entitled, to the extent of the value given the debtor for the 
transfer or obligation, to 
    (1) a lien on or a right to retain any interest in the 
asset transferred; 
    (2) enforcement of any obligation incurred; or 
    (3) a reduction in the amount of the liability on the 
judgment. 
    (e) A transfer is not voidable under section 4(a)(2) or 
section 5 if the transfer results from: 
    (1) termination of a lease upon default by the debtor when 
the termination is pursuant to the lease and applicable law; or 
    (2) enforcement of a security interest in compliance with 
article 9 of the Uniform Commercial Code. 
    (f) A transfer is not voidable under section 5(b):  
    (1) to the extent the insider gave new value to or for the 
benefit of the debtor after the transfer was made unless the new 
value was secured by a valid lien; 
    (2) if made in the ordinary course of business or financial 
affairs of the debtor and the insider; or 
    (3) if made pursuant to a good-faith effort to rehabilitate 
the debtor and the transfer secured present value given for that 
purpose as well as an antecedent debt of the debtor.  
    Sec. 9.  [513.50] [SUPPLEMENTARY PROVISIONS.] 
    Unless displaced by the provisions of this act, the 
principles of law and equity, including the law merchant and the 
law relating to principal and agent, estoppel, laches, fraud, 
misrepresentation, duress, coercion, mistake, insolvency, or 
other validating or invalidating cause, supplement its 
provisions. 
    Sec. 10.  [513.51] [SHORT TITLE.] 
    This act may be cited as the Uniform Fraudulent Transfer 
Act. 
    Sec. 11.  [DEFINITION.] 
    Where the term "this act" appears in sections 1 to 10, it 
refers to sections 1 to 10. 
    Sec. 12.  [REPEAL.] 
    Minnesota Statutes 1986, sections 513.20, 513.21, 513.22, 
513.23, 513.24, 513.25, 513.26, 513.27, 513.28, 513.29, 513.30, 
513.31, and 513.32 are repealed. 
    Approved April 7, 1987