MUFTA is Minnesota’s adoption of the Uniform Fraudulent Transfer Act (UFTA). The law was enacted to prevent defendants from divesting themselves of assets while claims are pending, or in anticipation of future claims. It is most often used in creditors’ rights and commercial litigation.
Essentially, MUFTA, following UFTA, codifies the remedies a creditor has available to retrieve property that a debtor has tried to keep from the creditor. Thus, the litigation is usually between the creditor, attempting to receive payment, and the transferee, in possession of the property that was once owned by the debtor.
Since the transfer is the issue, understanding what a transfer is – is the starting point.
Minnesota law defines “transfer” as “every mode, direct, or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset.” A transfer does not include contributions to charities or religious organizations, unless made within two years of the commencement of a claim under the MUFTA with the intent to hinder, delay, or defraud a creditor, or if the debtor was insolvent, had minimal business assets remaining, or was unable to pay. Transfers can be achieved in various ways.
The next factor to examine is what constitutes an “asset.” Practically any piece of property is an asset under MUFTA, with these few exceptions:
• property encumbered by a valid lien;
• property generally exempt under non-bankruptcy law; or
• property held in tenancy by the entireties if the claim is not against all those with an interest.
Under MUFTA if an asset transfer is made “with actual intent to hinder, delay, or defraud the creditor of the debtor” the transfer is fraudulent. The simple act of the transfer itself does not show the requisite intent. The fraudulent action may demonstrate intent constructively.
Such methods include:
• transfer to an insider;
• debtor retaining possession or control of the property after the transfer;
• concealed transfer;
• transfer under threat of being sued;
• transfer was substantially all of the debtors assets;
• the debtor absconded;
• debtor concealed assets;
• value received was almost equal to the value of property transferred;
• insolvency of debtor;
• timing of the transfer; and
• the transfer of essential business assets to a lien holder who then transferred the assets to the debtor’s insider.
When a court decides whether there was fraudulent intent, a single factor is rarely sufficient. The court will see if more than one of the above described factors is present which then gives rise to a presumption of fraudulent intent. On a final note, a court is not limited to only those factors; it is free to consider any other factors relevant to fraudulent intent.