If you really want to understand the Texas Fraudulent Transfer Act, you need to understand the definitions. These are a few from the statute. Others are mixed in with the rest of the website where they best fit.
Whether a person is an “affiliate” of a debtor is relevant in terms of determining whether the person is an “insider.” In turn, whether a person is an insider is relevant to the issue of whether a transfer to the person will be deemed fraudulent under certain sections of the TUFTA.
There are four different categories of affiliates:
1) a person who owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor, unless the person either holds the securities as a fiduciary or agent without sole discretionary power to vote the securities, or holds the securities solely to secure a debt and has not exercised the power to vote.
2) a corporation, 20 percent or more of whose outstanding voting securities are owned, controlled, or held with power to vote, by the debtor or a person who owns, controls, or holds, with power to vote, 20 percent or more of the outstanding voting securities of the debtor, unless the person either holds the securities as a fiduciary or agent without sole discretionary power to vote the securities, or holds the securities solely to secure a debt and has not 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 controlled by the debtor.
4) a person who operates the debtor’s business under a lease or other agreement or controls substantially all of the debtor’s assets.
Assets and Property
TUFTA only governs the transfers of “Assets.” Assets are property owned by the debtor. Property is something the debtor can own. So property can be things that are not tangible. Like a phone number, a name or an interest in a contract.
But these things are not property:
(1) property to the extent that it is encumbered by a valid lien;
(2) property that is generally exempt under non-bankruptcy law; and
(3) an interest in property held in tenancy by the entireties to the extent that it is not subject to process by a creditor holding a claim against only one tenant, under the law of another jurisdiction.
The Texas Fraudulent Transfer Act normally does not apply to homestead property. So a debtor can usually do almost anything it wants with its homestead.
A “claim” is a right to payment or property. Tex. Bus. & Com. Code §24.002(3).
The Texas Fraudulent Transfer Act only works to protect the creditors of a debtor. A creditor is defined as a person, including a spouse, minor, or ward, who has a claim. A person is a present creditor if the person’s claim arose before the transfer or obligation in question was made or incurred. A person is a future creditor if the person’s claim arose within a reasonable time after the transfer or the obligation in question was made or incurred.
A “lien” is a charge against or an interest in property to secure payment of a debt or performance of an obligation. The term includes security interests created by agreement, judicial liens obtained by legal or equitable process or proceedings, common-law liens, and statutory liens. A “valid lien” is a lien that is effective against the holder of a judicial lien subsequently obtained by legal or equitable process or proceedings.
Whenever the TUFTA uses the term “person,” it includes individuals, partnerships, corporations, associations, organizations, governments or governmental subdivisions or agencies, business trusts, estates, trusts, and any other legal or commercial entities.
“Transfer” means 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. It includes payment of money, release, lease, and creation of a lien or other encumbrance.
The debtor’s insolvency is also an important factor in the TUFTA analysis. A debtor is “insolvent” if the debtor’s total debt is greater than the fair market value of all of the debtor’s assets. Whenever a debtor cannot pay debts as they become due he is considered to be insolvent.
In deciding insolvency, the term “assets” does not include property that has been fraudulently transferred. Also, when determining insolvency, debts do not include valid liens on property of the debtor, unless those liens are on assets of the debtor included in the insolvency calculation.
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