In 2015, Minnesota adopted the new Uniform Voidable Transactions Act, which was recommended by the National Conference of Commissioners on Uniform State Laws. The new law replaces the Uniform Fraudulent Transfers Act, which dates back to 1987. Before 1987, the Uniform Fraudulent Conveyances Act was the law in Minnesota. The history of laws on fraudulent transfers, now voidable transactions, date back to the Uniform Fraudulent Conveyances Act adopted by the National Conference of Commissioners on Uniform State Laws in 1918.
What has changed with the adoption of the new Act? The answers can be not much or quite a lot. The basic idea that a person or company cannot sell or transfer their assets for no value, or less than reasonably equivalent value, and then claim poverty for existing creditors remains the same. The basic idea that transfers made with actual intent to defraud creditors can be set aside also remains in place. Actual intent is one theory that can be used to set aside a transfer, but it is not the only theory. Actual intent can be proved by looking at the “badges of fraud” that include transfers to family members or insiders, concealment and insolvency.
The fundamental change with the adoption of the new law is to clarify that a transaction that can be set aside as a voidable transaction is not a “tort” claim and is not equivalent to common law fraud. Fraud is not — and never has been — a necessary element of a claim for relief under the old or the new law. Proof of fraud is not required for a court to void a transaction under the law. Thus, “fraud” in the title of the prior law was really a misnomer that led to confusion in the courts. The new Act eliminates that confusion and clarifies that the Act is intended to provide a statutory remedy to some creditors, if the required elements of the statute are established.
In Finn v. Alliance Bank, et. al. (February 2015) the Minnesota Supreme Court addressed fraudulent transfers under the old law and in the context of Ponzi schemes. The Court determined there was not a presumption of a fraudulent transfer in a Ponzi scheme, but stated that courts should look at transfers on an asset-by-asset and transfer-by-transfer basis. A careful review of Minnesota’s new voidable transactions law, and understanding of the ideas and concepts embedded in the law, is important for attorneys when they are reviewing and analyzing possible voidable transactions.