CHAPTER 13 SENATE BILL No. 8* An Act enacting the uniform fraudulent transfer act. Be it enacted by the Legislature of the State of Kansas:

Section 1. As used in this act:

(a) ``Affiliate'' means:

(1) A person who directly or indirectly owns, controls or holds with
power to vote, 20% 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;

(2) a corporation 20% 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% or more of the outstanding voting secu-
rities 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;

(3) a person whose business is operated by the debtor under a lease
or other agreement, or a person substantially all of whose assets are con-
trolled by the debtor; or

(4) a person who operates the debtor's business under a lease or other
agreement or controls substantially all of the debtor's assets.

(b) ``Asset'' means property of a debtor. ``Asset'' does not include:

(1) Property to the extent it is encumbered by a valid lien; or

(2) property to the extent it is generally exempt under nonbankruptcy
law.

(c) ``Claim'' means a right to payment, whether or not the right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, ma-
tured, unmatured, disputed, undisputed, legal, equitable, secured or un-
secured.

(d) ``Creditor'' means a person who has a claim.

(e) ``Debt'' means liability on a claim.

(f) ``Debtor'' means a person who is liable on a claim.

(g) ``Insider'' includes:

(1) 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 person
in control;

(2) 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 con-
trol of the debtor;

(3) if the debtor is a partnership:

(A) A general partner in the debtor;

(B) a relative of a general partner in, 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;

(4) an affiliate, or an insider of an affiliate as if the affiliate were the
debtor; and

(5) a managing agent of the debtor.

(h) ``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 equi-
table process or proceedings, a common-law lien or a statutory lien.

(i) ``Person'' means an individual, partnership, corporation, associa-
tion, organization, government or governmental subdivision or agency,
business trust, estate, trust or any other legal or commercial entity.

(j) ``Property'' means anything that may be the subject of ownership.

(k) ``Relative'' means an individual related by consanguinity within
the third degree as determined by the common law, a spouse or an in-
dividual related to a spouse within the third degree as so determined, and
includes an individual in an adoptive relationship within the third degree.

(l) ``Transfer'' means every mode, direct or indirect, absolute or con-
ditional, 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.

(m) ``Valid lien'' means a lien that is effective against the holder of a
judicial lien subsequently obtained by legal or equitable process or pro-
ceedings.

Sec. 2. (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 such debtor's 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. (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 subsection (a)(2) of section 4 and section 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, non-
collusive foreclosure sale or execution of a power of sale for the acquisi-
tion 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. (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:

(A) 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

(B) intended to incur, or believed or reasonably should have believed
that such debtor would incur, debts beyond such debtor's ability to pay
as they became due.

(b) In determining actual intent under subsection (a)(1), considera-
tion 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 trans-
ferred 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 reason-
ably 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. (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. For the purposes of this act:

(a) A transfer is made:

(1) 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

(2) 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;

(b) if applicable law permits the transfer to be perfected as provided
in paragraph (1) and the transfer is not so perfected before the com-
mencement of an action for relief under this act, the transfer is deemed
made immediately before the commencement of the action;

(c) 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;

(d) a transfer is not made until the debtor has acquired rights in the
asset transferred;

(e) an obligation is incurred:

(1) If oral, when it becomes effective between the parties; or

(2) if evidenced by a writing, when the writing executed by the obligor
is delivered to or for the benefit of the obligee.

Sec. 7. (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 trans-
ferred or other property of the transferee in accordance with the proce-
dure prescribed by K.S.A. 60-701 et seq. and amendments thereto or
other appropriate provision of law;

(3) subject to applicable principles of equity and in accordance with
applicable rules of civil procedure:

(A) An injunction against further disposition by the debtor or a trans-
feree, or both, of the asset transferred or of other property;

(B) appointment of a receiver to take charge of the asset transferred
or of other property of the transferee; or

(C) 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. (a) A transfer or obligation is not voidable under subsection
(a)(1) of section 4 against a person who took in good faith and for a
reasonably equivalent value or against any subsequent transferee or ob-
ligee.

(b) Except as otherwise provided in this section, to the extent a trans-
fer is voidable in an action by a creditor under subsection (a)(1) of section
7, the creditor may recover judgment for the value of the asset trans-
ferred, 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 subsection (a)(2) of section 4 or
section 5 if the transfer results from:

(1) Termination of a lease upon default by the debtor when the ter-
mination 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 subsection (b) of section 5:

(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 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. A cause of action with respect to a fraudulent transfer or
obligation under this act is extinguished unless action is brought:

(a) Under subsection (a)(1) of section 4, within four years after the
transfer was made or the obligation was incurred or, if later, within one
year after the transfer or obligation was or could reasonably have been
discovered by the claimant;

(b) under subsection (a)(2) of section 4 or subsection (a) of section
5, within four years after the transfer was made or the obligation was
incurred; or

(c) under subsection (b) of section 5, within one year after the trans-
fer was made or the obligation was incurred.

Sec. 10. 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. 11. This act shall be applied and construed to effectuate its gen-
eral purpose to make uniform the law with respect to the subject of this
act among states enacting it.

Sec. 12. This act may be cited as the uniform fraudulent transfer act.

Sec. 13. This act shall take effect and be in force from and after
January 1, 1999, and its publication in the statute book.

Approved February 20, 1998