Articles | Aug 21, 2023

Timing Considerations for Commencing State Law Avoidance Actions in NYS

American Bankruptcy Institute

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Two statutory schemes each have different time limitations when commencing an action

Currently in New York State, creditors’ ability to avoid fraudulent transfers is governed by one of two different statutory schemes, depending on when the transfer occurred. Although New York State adopted the Uniform Voidable Transactions Act in 2019, New York’s predecessor fraudulent transfer statute, the Uniform Fraudulent Conveyance Act, still governs those transfers which occurred prior to April 4, 2020. These two statutory schemes each have different limitations on time to commence an action. Accordingly, understanding the applicable statute of limitations will be crucial for creditors seeking to commence an action to avoid a transfer under New York Debtor and Creditor Law or assess their risk of being targeted with such an action.

In 2014, the Uniform Law Commission promulgated a set of amendments to the 1984 Uniform Fraudulent Transfer Act (“UFTA”), which amendments, among other things, changed the name of the UFTA to the Uniform Voidable Transactions Act (“UVTA”).1 The UFTA and the UVTA have been quite successful as uniform acts, with one or the other having been adopted by all but six jurisdictions in the United States.2 New York State, however, maintained the Uniform Fraudulent Conveyance Act (“UFCA”), which was initially promulgated in 1918, instead of adopting the UFTA.3 It was not until 2019 that New York left the centenarian UFCA behind and adopted the UVTA.4 New York’s UVTA, codified at Article 10 of New York Debtor and Creditor Law, became effective as of April 4, 2020 but applies only to those transfers made after April 4, 2020.5 To the extent a party wishes to challenge a transfer made prior to April 4, 2020, such transfer must be challenged under the provisions of the UFCA.

This veritable alphabet soup of fraudulent transfer avoidance laws results in different timing considerations depending on whether an action may be commenced under the New York UFCA or the UVTA, as well as whether the transfer was made with actual intent to “hinder, delay, or defraud” creditors.6 The New York UFCA does not contain an express statute of limitations, and so the applicable statute of limitations is set forth in New York’s Civil Practice Law and Rules (“CPLR”). Under the CPLR, the statute of limitations for constructive fraud is six years.7 For claims based on actual fraud, however, the claim is timely if brought within the greater of either six years from the date of the fraud, or two years from the date of discovery of the fraud.8

New York’s UVTA, however, incorporates an express – and shorter – statute of limitations than what is generally available for claims under the UFCA and the CPLR. An action under the UVTA must be commenced within four years of when a transfer was made.9 Like the CPLR, the UVTA provides an exception to the four-year statute of limitations in cases of actual fraud, where an action may be commenced within the later of four years after the transfer was made or within one year after the transfer was or could reasonably have been discovered by the claimant.10 Thus, a claimant may have a larger window of time during which to commence an action to avoid a transfer, so long as the transfer was made prior to the April 4, 2020 effective date of the New York UVTA.

The different statutes of limitations under New York fraudulent transfer law may also impact strategic considerations in cases under the Federal Bankruptcy Code. Bankruptcy trustees and debtors-in-possession seeking to avoid fraudulent transfers under Section 548 of the Bankruptcy Code are limited to those transfers occurring in the two years prior to the commencement of the bankruptcy case.11 By virtue of Section 544 of the Bankruptcy Code, which also allows a trustee to avoid transfers voidable under applicable state law, the New York UFCA gave bankruptcy trustees the ability to reach beyond the two-year look-back period available under Section 548 and take advantage of the longer six-year statute of limitations available under the CPLR.12 With the codification of the UVTA in New York, Section 544 claims based on New York State avoidance law will now be subject to the shortened four-year statute of limitations if the transfer occurred after April 4, 2020. Further, the shortened statute of limitations available under the UVTA will impact a creditor’s ability to pursue such claims if the trustee does not act. The trustee has a limited period of time – the later of two years from the commencement of the bankruptcy case or one year from appointment of the trustee – to bring claims under Section 544.13 If the trustee does not act during this time, standing to pursue such claims automatically reverts back to creditors.14 If a transfer is subject to the New York UVTA, any avoidance claims are more likely to be time-barred by the time that the statute of limitations for the bankruptcy trustee to act expires.

The hodge podge of applicable avoidance statutes in New York State will result incongruous results for a period of time – for example, a creditor (or bankruptcy trustee) seeking to avoid a transfer that occurred in March 2020 will have until 2026 to commence an action while a similarly situated creditor seeking to avoid a transfer that occurred in May 2020 has only until 2024. Given the varied applicable statutory schemes, it is crucial that a prospective claimant – or a potential target of a claim – understands when the transfer occurred and which statutory scheme is applicable to such transfer.

1   Kenneth C. Kettering, The Uniform Voidable Transactions Act; or, the 2014 Amendments to the Uniform Fraudulent Transfer Act, 70 Bus. Law. 777, 779 (2015).

2   Uniform Law Commission, Voidable Transactions Act: Enactment History, (last visited July 27, 2023).

3   Kettering, supra note 1, at 779.

4   N.Y. Legis. Assemb. A-5622 § 7, Reg. Sess. 2019-2020 (2019)).

5   Id.

6   N.Y. Debt. & Cred. Law §§ 273(a), 278(a) (McKinney (2023)).

7   N.Y. C.P.L.R. 213 [1] (McKinney (2023)); see also Wall Street Assoc. v. Brodsky, 684 N.Y.S.2d 244, 248 (1st Dep’t 1999).

8   N.Y. C.P.L.R. 213 [8] (McKinney (2023)); see also Leone v. Sabbatino, 652 N.Y.S.2d 628, 629 (2d Dep’t 1997).

9   N.Y. Debt. & Cred. Law § 278(a) (McKinney (2023)).

10   N.Y. Debt. & Cred. Law § 278(b) (McKinney (2023)).

11   11 U.S.C. §548(a)(1).

12   11 U.S.C. §544(b)(1).

13   11 U.S.C. § 546(a).

14   In re Tribune Company Fraudulent Conveyance Litigation, 499 B.R. 310, 322 (S.D.N.Y. 2013).