UFTA Case Analysis

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Although this case involves an interpretation of Illinois law, it is nevertheless relevant to Wisconsin practitioners, because sec. 242.05(1) is identical to the Illinois statute considered in this case.

In addition, just as there are no Illinois cases directly defining “reasonably equivalent value,” there is a paucity of Wisconsin law on the issue as well.

Only one case addresses the meaning of the term, which is undefined in the statutes. Badger State Bank v. Taylor, 2004 WI 128, 276 Wis.2d 312, 688 N.W.2d 439.

The defendants in that case argued that reasonably equivalent value had been exchanged, where the defendants received $18,000 of accounts receivable in exchange for only $15,000.

The Wisconsin Supreme Court agreed that this would be reasonably equivalent value, if that is actually what had happened. However, the court found that, while the defendants received consideration in the transfer, the insolvent debtor actually received nothing, and the rest of the consideration insured to the benefit of a third party. Badger State Bank, 688 N.W.2d at 445-446.

Nevertheless, the court’s statement that the transfer, if legitimate, would qualify as being for reasonably equivalent value, implicitly agrees with what the Seventh Circuit held in the case at bar — book value does not determine the actual value of accounts receivable.

The disparity in the amounts involved still sets the case at bar apart from Badger State Bank. At issue in Badger State Bank was a few thousand dollars of accounts receivable; in the case at bar, it is more than $2.7 million.

Arguably, a party claiming that $2.7 million in accounts receivable is actually worth less than $17,000 should bear a high burden of proof.

However, that is not what the law requires. In the case at bar, “as a last ditch argument,” the Committee argued that the debtor, rather than the Committee, should have had the burden of proof, but the court disagreed, based on Illinois case law.

Wisconsin law holds the same. Badger State Bank, 688 N.W.2d at 442.

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A couple of arguments could be made for a contrary rule. First, sec. 242.05 concerns present creditors, unlike sec. 242.04, which concerns all creditors; perhaps, present creditors should have a lower burden of proof. Second, the debtor is the party who likely has better information as to the actual value of the property transferred.

Ultimately, however, longstanding law holds that it is the party seeking to set aside a transfer as fraudulent that has the burden of proof.

Furthermore, in the sec. 242.05 context, the creditor’s burden is already substantially lower, in that he need not show “actual intent to hinder, delay or defraud,” as he must under sec. 242.04. He need only show that the transfer was not for “reasonably equivalent value” and that the debtor was insolvent, or became insolvent as a result of the transaction.

Given that the creditor is already relieved of proving actual intent to defraud, there is little to support shifting the burden of proof entirely. As a result, the creditors’ “last ditch argument” in this case would not be likely to fare any better under Wisconsin law.

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David Ziemer can be reached by email.