What is an ‘insider’ according to the UFTA?

 

Transferring an asset to an ‘insider’ is a badge of fraud (which is defined in §4(b) of the UFTA), which increases the likelihood of a fraudulent transfer ruling. In a nutshell, an insider is someone that the law determines is likely to be very friendly to a client and his or her needs.

 

Note that a transfer to an entity of which the client is a non-managing member is not a transfer to an insider under the UFTA. This gives us some interesting planning opportunities.

 

An insider (which includes an affiliate) is defined by the UFTA as follows:

 

(1)   "Affiliate" means:

(i)      a person who directly or indirectly owns, controls, or holds with power to vote, 20 percent 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;

(ii)    a corporation 20 percent 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 percent 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 power to vote the securities; or

(B)  solely to secure a debt, if the person has not in fact exercised the power to vote;

(iii)   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; or

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

(2)   "Insider" includes:

(i)      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;

(ii)    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 control of the debtor;

(iii)   if the debtor is a partnership,

(A)  a general partner in the debtor;

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

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

(v)    a managing agent of the debtor.