Pleading Fraudulent Conveyances: Federal vs. New York State Requirements

(Excerpt) Fraudulent conveyances are transfers of a debtor’s property made to defraud, burden, and unfairly place the property out of reach of the creditor. Such transfers are illegal and therefore prohibited under both federal and New York State law. Federal fraudulent conveyance law, the United States Bankruptcy Code (the “Bankruptcy Code”), recognizes two different types of fraudulent conveyances: intentional (“actual”) fraudulent transfers and constructive fraudulent transfers. Each of these fraudulent transfers require different pleading standards. These two types of fraud are recognized in New York, as well. If these fraudulent conveyances can be proven, both federal and state law allow for trustees to avoid these transfers. Both similarities and differences exist between fraudulent transfer pleading standards under federal law and New York State law. New York recently adopted a new fraudulent conveyance statute, the Uniform Voidable Transactions Act (the “UVTA”). The UVTA became effective in April 2020 and is consistent with much of the Bankruptcy Code. This memorandum compares the fraudulent conveyance statutes and pleading requirements under federal law to the standards imposed under New York State law. Part I of this memorandum first discusses the general pleading standards when filing a complaint in federal court. It also identifies and defines the two types of fraudulent conveyances prohibited under the Bankruptcy Code -- intentional fraudulent conveyances and constructive fraudulent conveyances -- and addresses the different pleading standards for each type of fraud. Part II of this memorandum addresses the pleading requirements for complaints filed in New York State, and then compares the pleading standards under New York’s old statute, the Uniform Fraudulent Conveyance Act (the “UFCA”), to its new statute, the UVTA