Legislature(2005 - 2006)CAPITOL 17

01/27/2006 03:15 PM House LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 295(L&C) Out of Committee
Heard & Held
HB 295-UNIFORM FRAUDULENT TRANSFER ACT                                                                                        
CHAIR ANDERSON announced  that the final order  of business would                                                               
be HOUSE  BILL NO. 295,  "An Act adopting the  Uniform Fraudulent                                                               
Transfer Act and relating to fraudulent transfers of property."                                                                 
3:30:13 PM                                                                                                                    
LYNN LEVENGOOD, Attorney,  Fairbanks, said he is a  member of the                                                               
National Conference of Commissioners  on Uniform State Law, which                                                               
is an  expert body to  help create uniform  state laws.   He said                                                               
the  most notable  law is  the  Uniform Commercial  Code, and  he                                                               
added that  there are  many other uniform  acts that  states have                                                               
adopted.   He noted  that HB  295 was  originally drafted  by the                                                               
National Conference by a subcommittee of  experts.  He said he is                                                               
not an  expert in the field  but offered to contact  the original                                                               
drafters to answer questions for the committee.                                                                                 
3:32:29 PM                                                                                                                    
CHAIR  ANDERSON   said  Michelle   Boutin  was  the   person  who                                                               
originally contacted him to sponsor HB 295.                                                                                     
MICHELLE  BOUTIN, Attorney,  Anchorage, said  she specializes  in                                                               
commercial law and  bankruptcy, and she has worked  first hand on                                                               
fraudulent  conveyance matters.   She  stated she  fully supports                                                               
the  adoption of  HB  295,  and 42  other  states  have done  so.                                                               
Current Alaska statute  contains only one sentence  on the issue,                                                               
and  attorneys  need  more  guidance  as  to  what  a  fraudulent                                                               
conveyance is,  she said.   She  opined that  it is  like driving                                                               
down  the  road  without  a  roadmap.    She  said  she  recently                                                               
represented a  bankruptcy trustee,  and the debtor  in bankruptcy                                                               
was  a  corporation  which  was   owned  by  one  person.    That                                                               
individual "saw what  was coming down the  road", transferred all                                                               
the corporate  assets to  herself, and  filed for  bankruptcy for                                                               
the company.                                                                                                                    
MS.  BOUTIN brought  a fraudulent  conveyance action  against the                                                               
owner,  seeking to  recover the  property  that was  fraudulently                                                               
conveyed and put  it back into the bankruptcy estate  so it could                                                               
be liquidated for the benefit of  the creditor.  The case went to                                                               
trial, and under "some existing  Alaska case law" the judge found                                                               
authority  for  "the  shareholder,  even though  the  debtor  was                                                               
insolvent, to prefer herself, and  transfer the assets to herself                                                               
because she claimed  to have made some loans  to the corporation.                                                               
So she too was a creditor of  the corporation, so it was okay for                                                               
her to orchestrate  this so that she received all  the assets and                                                               
the other creditors did not."   She said the judge wrote that had                                                               
Alaska had the  Uniform Fraudulent Transfer Act  (UFTA) in place,                                                               
he would  have found it fraudulent.   "He sort of  was begging us                                                               
to  see  that  Alaska  does  something  and  passes  the  Uniform                                                               
Fraudulent  Transfer Act."   She  noted that  the outcome  of her                                                               
case would  have been far more  equitable, and she has  made it a                                                               
personal mission to  get the act passed.  She  said the law would                                                               
fit  in   with  the  current  climate   of  promoting  individual                                                               
responsibility,  as   seen  in  the   sweeping  changes   to  the                                                               
bankruptcy code last fall.                                                                                                      
3:37:58 PM                                                                                                                    
CHAIR ANDERSON  said the  bill will go  to judiciary,  which will                                                               
assess its legal  aspects.  This bill will remedy  the ability of                                                               
someone to escape a debt, he noted.                                                                                             
3:39:13 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG,   referring  to   a  letter   to  the                                                               
committee  from Ms.  Boutin, said  he will  have questions  about                                                               
business practices and the reason  why fraudulent activity wasn't                                                               
found in  her case.  He  also referred to the  third paragraph of                                                               
the  sponsor statement,  which states  that the  UFTA "creates  a                                                               
right  of action  for any  creditor  against any  debtor and  any                                                               
other  person  who  receives  property   from  the  debtor  in  a                                                               
fraudulent manner."   He asked if  there is any place  in statute                                                               
where there is a similar action for a debtor against a creditor.                                                                
3:40:34 PM                                                                                                                    
MS. BOUTIN said she is not aware  that there is a cause of action                                                               
arising  out of  the  UFTA  that a  debtor  can  bring against  a                                                               
CHAIR ANDERSON  said the question  is why isn't there  an ability                                                               
for  a  debtor to  go  against  a  creditor,  "but what  was  the                                                               
original purpose of the UFTA?"                                                                                                  
3:41:09 PM                                                                                                                    
MS. BOUTIN said  the original purpose of the  UFTA "is concerning                                                               
transfers fraudulent  as to present  and future creditors."   She                                                               
said,  just like  Alaska's current  statute, it  is a  remedy for                                                               
creditors  to  recover  assets  that  debtors  have  fraudulently                                                               
transferred away.  She said if  debtors are harmed with regard to                                                               
assets being taken away, there may be another type of remedy.                                                                   
3:42:19 PM                                                                                                                    
CHAIR  ANDERSON said  there are  probably  other mechanisms,  but                                                               
"this isn't the one in this state or any other state."                                                                          
MS. BOUTIN  said that  is correct,  and she  noted that  there is                                                               
also a look-back provision for future creditors.                                                                                
3:43:07 PM                                                                                                                    
REPRESENTATIVE ROKEBERG  asked if Ms.  Boutin reviewed HB  295 in                                                               
the context  of Alaska  statute, and if  she is  comfortable with                                                               
the way the bill is drafted.                                                                                                    
3:43:41 PM                                                                                                                    
MS. BOUTIN  said she fully supports  the bill, and thinks  it was                                                               
taken directly from  what has been proposed by  the committee for                                                               
uniform laws.   She  said a section  had been  inadvertently left                                                               
out of one version, and didn't know if it had been fixed.                                                                       
HEATH HILYARD,  Staff to Representative Tom  Anderson, sponsor of                                                               
HB 295,  said he has  a blank committee substitute  that includes                                                               
that section that was left out of the original version.                                                                         
MS. BOUTIN said she "100 percent supports" the current version.                                                                 
REPRESENTATIVE ROKEBERG  said the current Alaska  law was adopted                                                               
in 1949.   He noted that he  has seen this bill  several times in                                                               
the  past, and  it "unfortunately  hasn't made  it through."   He                                                               
asked if the bill conforms to the newest bankruptcy act.                                                                        
MS. BOUTIN said  it is not the  same at all, but  it doesn't have                                                               
to be,  because once a  party is  in bankruptcy then  the federal                                                               
laws control  what happens in  the bankruptcy case.   "In fitting                                                               
with  the political  climate, right  now, of  making people  more                                                               
responsible, they  expanded under the federal  law the fraudulent                                                               
transfer remedies  that the bankruptcy trustee  or creditor would                                                               
have once  an entity  does file  for bankruptcy."   She  said the                                                               
laws are  not the same;  the bankruptcy look-back period  is only                                                               
two years  and does not  track the UFTA.   She said that  is okay                                                               
because there  is a separate  remedy that the  bankruptcy trustee                                                               
has  once a  party files.   The  trustee can  bring a  fraudulent                                                               
conveyance action either  under the bankruptcy code  or bring any                                                               
actions  under state  law.   "So  the trustee  has  both, and  if                                                               
Alaska  passes  the   UFTA,  the  trustee  can   either  use  the                                                               
bankruptcy federal  fraudulent conveyance  statute or he  can use                                                               
the Alaska UFTA statute."                                                                                                       
3:47:12 PM                                                                                                                    
CHAIR ANDERSON  moved to adopt  Version G.  Seeing  no objection,                                                               
Version G was before the committee.                                                                                             
MR. HILYARD said the inserted section  is on page 7, beginning at                                                               
line 27.  It had been  accidentally omitted, and that is the only                                                               
change, he said.                                                                                                                
3:47:56 PM                                                                                                                    
REPRESENTATIVE  ROKEBERG said  Ms. Boutin  suggested there  is an                                                               
ability to choose to use federal or Alaska law.                                                                                 
MS. BOUTIN  said if there is  a bankruptcy, that is  true, but if                                                               
there is not one, then the creditor can only use Alaska law.                                                                    
REPRESENTATIVE ROKEBERG  spoke of the bankruptcy  that Ms. Boutin                                                               
described with  the judge deferring to  state statute.  So  it is                                                               
necessary to  have Alaska  law to assist  you to  accomplish your                                                               
objectives, is that correct? he asked.                                                                                          
MS. BOUTIN said, "Yes."                                                                                                         
3:49:16 PM                                                                                                                    
MR. LEVENGOOD  said the new bankruptcy  code is very new,  and he                                                               
will call Chicago and get back to Chair Anderson.                                                                               
3:50:01 PM                                                                                                                    
CHAIR ANDERSON  said the bill  is technical, and it  is difficult                                                               
to find problems until you "sink your teeth into it."                                                                           
MR. HILYARD  said that in  looking through "both the  Uniform Law                                                               
Commission's information provided and  the National Conference of                                                               
State Legislatures  (NCSL), this  is the most  recent act  that I                                                               
have been able to find."                                                                                                        
CHAIR ANDERSON said the bill emulated the NCSL version.                                                                         
MR. HILYARD said  he believes the model act provided  on the NCSL                                                               
website was  taken from the  Uniform Law Commission, and  he said                                                               
he doesn't believe there was a second version.                                                                                  
3:51:48 PM                                                                                                                    
CHAIR ANDERSON suggested  moving the bill to  the House Judiciary                                                               
Standing Committee to work on.                                                                                                  
REPRESENTATIVE   ROKEBERG    said   the   former    uniform   law                                                               
commissioner, Art Peterson, is in Juneau.                                                                                       
3:52:46 PM                                                                                                                    
MS.  BOUTIN  said that  when  this  bill was  introduced  before,                                                               
Alaska was in the process  of implementing new trust statutes and                                                               
there was  concern regarding how  the two  would mesh.   She said                                                               
trust law attorneys have lived with  that statute for a while, so                                                               
she assumes that many of those concerns are gone.                                                                               
3:53:22 PM                                                                                                                    
CHAIR ANDERSON said he will contact Art Peterson.                                                                               
REPRESENTATIVE  ROKEBERG moved  to report  CSHB 295,  Version 24-                                                               
LS0843\G, Bannister,  1/20/06, out  of committee  with individual                                                               
recommendations and  the accompanying  fiscal notes.   Hearing no                                                               
objection, CSHB  295 (L&C)  was reported out  of the  House Labor                                                               
and Commerce Standing Committee.                                                                                                

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