California Omits Insider Preferences From Its UVTA But Includes Them In Its ABC Statute . . . What’s With That?!!

By: Donald L Swanson

The following combination of facts seems odd . . . and confusing.

• The Uniform Voidable Transactions Act (“UVTA”) authorizes (in Sec. 5(b)) unsecured creditors to avoid insider preferences, with a one-year reach back, when the insider “had reasonable cause to believe that the debtor was insolvent” [fn. 1];
  • California has adopted the UVTA, including its Sec. 5 [fn. 2]; but
  • in doing so, California omitted the UVTA’s Sec. 5(b) insider preference provision [compare language in fn. 1 with corresponding language in fn. 2].
• Instead of including the insider preference provision in its UVTA, California put that provision in an assignment for benefit of creditors (“ABC”) statute:
  • Cal.Civ.Proc. Code § 1800(b) authorizes ABC assignees to avoid insider preferences, made within one year before the assignment occurs, when the insider “had reasonable cause to believe the debtor was insolvent” [fn. 3].

So . . . in California, the only time an insider preference claim (ordinarily created by the UVTA) can be pursued is by an assignee for benefit of creditors, after an ABC assignment has already occurred. Outside an assignment for benefit of creditors, no such insider preference claim exists–even though California has otherwise enacted the UVTA!

Say what?!!!

Questions

• Why would California’s legislature adopt the Uniform Voidable Transactions Act—without including its insider preference provision?
• And why would California’s legislature insert UVTA-equivalent insider preference language into its ABC statute, instead? In other words, why would California’s legislature:
  • jettison an insider preference statute that’s applicable in nearly all contexts (and a “uniform” statute, at that);
  • in favor of the same insider preference statute that only applies, exclusively, in the very-narrow ABC context?

Bizarre

I’m sorry, but that’s just . . . bizarre. It’s not merely odd. It’s a bizarre oddity.

I’d love to know what political analysis, calculations, intrigue and trade-offs went into excluding insider preference claims from UVTA and inserting them into ABC, instead.

Conclusion

What’s with that?!

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Footnote 1:  The Uniform Law Commission proposed its Uniform Voidable Transactions Act, with a § 5 that says (emphasis added):

“(a) A transfer made or obligation incurred by a debtor is 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.

(b) A transfer made by a debtor is 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.

(c) Subject to Section 2(b), a creditor making a claim for relief under subsection (a) or (b) has the burden of proving the elements of the claim for relief by a preponderance of the evidence.”

Footnote 2:  Cal.Civ. Code § 3439.05 is California’s Sec. 5 of the Uniform Voidable Transactions Act (without UVTA’s subpart (b)), which says:

 “(a) A transfer made or obligation incurred by a debtor is 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.

(b) A creditor making a claim for relief under subdivision (a) has the burden of proving the elements of the claim for relief by a preponderance of the evidence.”

Footnote 3: Cal.Civ.Proc. Code § 1800(b), says (emphasis added):

“(b) Except as provided in subdivision (c), the assignee of any general assignment for the benefit of creditors, as defined in Section 493.010, may recover any transfer of property of the assignor that is all of the following: (1) To or for the benefit of a creditor. (2) For or on account of an antecedent debt owed by the assignor before the transfer was made. (3) Made while the assignor was insolvent. (4) Made on or within 90 days before the date of the making of the assignment or made between 90 days and one year before the date of making the assignment if the creditor, at the time of the transfer, was an insider and had reasonable cause to believe the debtor was insolvent at the time of the transfer. (5) Enables the creditor to receive more than another creditor of the same class.”

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