CO Code § 38-8-105 (2021)
2021 Colorado Code|Title 38 - Property - Real and Personal|Article 8 - Fraudulent Transfers|§ 38-8-105. Transfers Fraudulent as to Present and Future Creditors

  A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:   With actual intent to hinder, delay, or defraud any creditor of the debtor; or    Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:   Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or    Intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.          In determining actual intent under paragraph   of subsection (1) of this section, consideration may be given, among other factors, to whether:    The debtor retained possession or control of the property transferred after the transfer;    The transfer or obligation was disclosed or concealed;    Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;    The transfer was of substantially all the debtor's assets;    The debtor absconded;    The debtor removed or concealed assets;    The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;    The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;    The transfer occurred shortly before or shortly after a substantial debt was incurred; and    The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.        (a) The transfer or obligation was to an insider;   History. Source: L. 91: Entire article added, p. 1685, § 1, effective July 1.    Editor's note - Colorado legislative change: This section was numbered as section 4 in the uniform act.   OFFICIAL COMMENT    Section 4(a)(1) (numbered as section 38-8-105 (1)(a) in C.R.S.) is derived from § 7 of the Uniform Fraudulent Conveyance Act. Factors appropriate for consideration in determining actual intent under paragraph (1) (paragraph (a) in C.R.S.) are specified in subsection (b) (subsection (2) in C.R.S.).    Section 4(a)(2) (numbered as section 38-8-105 (1)(b) in C.R.S.) is derived from §§ 5 and 6 of the Uniform Fraudulent Conveyance Act but substitutes “reasonably equivalent value” for “fair consideration.” The transferee's good faith was an element of “fair consideration” as defined in § 3 of the Uniform Fraudulent Conveyance Act, and lack of fair consideration was one of the elements of a fraudulent transfer as defined in four sections of the Uniform Act. The transferee's good faith is irrelevant to a determination of the adequacy of the consideration under this Act, but lack of good faith may be a basis for withholding protection of a transferee or obligee under § 8 infra (numbered as section 38-8-109 in C.R.S.).    Unlike the Uniform Fraudulent Conveyance Act as originally promulgated, this Act does not prescribe different tests when a transfer is made for the purpose of security and when it is intended to be absolute. The premise of this Act is that when a transfer is for security only, the equity or value of the asset that exceeds the amount of the debt secured remains available to unsecured creditors and thus cannot be regarded as the subject of a fraudulent transfer merely because of the encumbrance resulting from an otherwise valid security transfer. Disproportion between the value of the asset securing the debt and the size of the debt secured does not, in the absence of circumstances indicating a purpose to hinder, delay, or defraud creditors, constitute an impermissible hindrance to the enforcement of other creditors' rights against the debtor-transferor. Cf. U.C.C. § 9-311.    Subparagraph (i) of § 4(a)(2) (subparagraph (I) of section 38-8-105 (1)(b) in C.R.S.) is an adaptation of § 5 of the Uniform Fraudulent Conveyance Act but substitutes “unreasonably small [assets] in relation to the business or transaction” for “unreasonably small capital.” The reference to “capital” in the Uniform Act is ambiguous in that it may refer to net worth or to the par value of stock or to the consideration received for stock issued. The special meanings of “capital” in corporation law have no relevance in the law of fraudulent transfers. The subparagraph focuses attention on whether the amount of all the assets retained by the debtor was inadequate, i.e., unreasonably small, in light of the needs of the business or transaction in which the debtor was engaged or about to engage.    Subsection (b) (subsection (2) in C.R.S.) is a nonexclusive catalogue of factors appropriate for consideration by the court in determining whether the debtor had an actual intent to hinder, delay, or defraud one or more creditors. Proof of the existence of any one or more of the factors enumerated in subsection (b) may be relevant evidence as to the debtor's actual intent but does not create a presumption that the debtor has made a fraudulent transfer or incurred a fraudulent obligation. The list of factors includes most of the badges of fraud that have been recognized by the courts in construing and applying the Statute of 13 Elizabeth and § 7 of the Uniform Fraudulent Conveyance Act. Proof of the presence of certain badges in combination establishes fraud conclusively--i.e., without regard to the actual intent of the parties--when they concur as provided in § 4(a)(2) or in § 5 (section 38-8-105 (1)(b) or in section 38-8-106 in C.R.S.). The fact that a transfer has been made to a relative or to an affiliated corporation has not been regarded as a badge of fraud sufficient to warrant avoidance when unaccompanied by any other evidence of fraud. The courts have uniformly recognized, however, that a transfer to a closely related person warrants close scrutiny of the other circumstances, including the nature and extent of the consideration exchanged. See 1 G. Glenn, Fraudulent Conveyances and Preferences § 307 (Rev. ed. 1940). The second, third, fourth, and fifth factors listed are all adapted from the classic catalogue of badges of fraud provided by Lord Coke in Twyne's Case, 3 Coke 80b, 76 Eng.Rep. 809 (Star Chamber 1601). Lord Coke also included the use of a trust and the recitation in the instrument of transfer that it “was made honestly, truly, and bona fide,” but the use of the trust is fraudulent only when accompanied by elements or badges specified in this Act, and recitals of “good faith” can no longer be regarded as significant evidence of a fraudulent intent.    In considering the factors listed in § 4(b) (section 38-8-105 (2) in C.R.S.) a court should evaluate all the relevant circumstances involving a challenged transfer or obligation. Thus the court may appropriately take into account all indicia negativing as well as those suggesting fraud, as illustrated in the following reported cases:   Whether the transfer or obligation was to an insider: Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582-83 (2d Cir. 1983) (insolvent debtor's purchase of two residences in the name of his spouse and the creation of a dummy corporation for the purpose of concealing assets held to evidence fraudulent intent); Banner Construction Corp. v. Arnold, 128 So.2d 893 (Fla.Dist.App. 1961) (assignment by one corporation to another having identical directors and stockholders constituted a badge of fraud); Travelers Indemnity Co. v. Cormaney, 258 Iowa 237, 138 N.W.2d 50 (1965) (transfer between spouses said to be a circumstance that shed suspicion on the transfer and that with other circumstances warranted avoidance); Hatheway v. Hanson, 230 Iowa 386, 297 N.W. 824 (1941) (transfer from parent to child said to require a critical examination of surrounding circumstances, which, together with other indicia of fraud, warranted avoidance); Lumpkins v. McPhee, 59 N.M. 442, 286 P.2d 299 (1955) (transfer from daughter to mother said to be indicative of fraud but transfer held not to be fraudulent due to adequacy of consideration and delivery of possession by transferor).    Whether the transferor retained possession or control of the property after the transfer: Harris v. Shaw, 224 Ark. 150, 272 S.W.2d 53 (1954) (retention of property by transferor said to be a badge of fraud and, together with other badges, to warrant avoidance of transfer); Stephens v. Reginstein, 89 Ala. 561, 8 So. 68 (1890) (transferor's retention of control and management of property and business after transfer held material in determining transfer to be fraudulent); Allen v. Massey, 84 U.S. (17 Wall.) 351 (1872) (joint possession of furniture by transferor and transferee considered in holding transfer to be fraudulent); Warner v. Norton, 61 U.S. (20 How.) 448 (1857) (surrender of possession by transferor deemed to negate allegations of fraud).    Whether the transfer or obligation was concealed or disclosed: Walton v. First National Bank, 13Colo. 265, 22 P. 440 (1889) (agreement between parties to conceal the transfer from the public said to be one of the strongest badges of fraud); Warner v. Norton, 61 U.S. (20 How.) 448 (1857) (although secrecy said to be a circumstance from which, when coupled with other badges, fraud may be inferred, transfer was held not to be fraudulent when made in good faith and transferor surrendered possession); W.T. Raleigh Co. v. Barnett, 253 Ala. 433, 44 So.2d 585 (1950) (failure to record a deed in itself said not to evidence fraud, and transfer held not to be fraudulent).    Whether, before the transfer was made or obligation was incurred, a creditor sued or threatened to sue the debtor: Harris v. Shaw, 224 Ark. 150, 272 S.W. 2d 53 (1954) (transfer held to be fraudulent when causally connected to pendency of litigation and accompanied by other badges of fraud); Pergrem v. Smith, 255 S.W.2d 42 (Ky.App. 1953) (transfer in anticipation of suit deemed to be a badge of fraud; transfer held fraudulent when accompanied by insolvency of transferor who was related to transferee); Bank of Sun Prairie v. Hovig, 218 F.Supp. 769 (W.D.Ark. 1963) (although threat or pendency of litigation said to be an indicator of fraud, transfer was held not to be fraudulent when adequate consideration and good faith were shown).    Whether the transfer was of substantially all the debtor's assets: Walbrun v. Babbitt, 83 U.S. (16 Wall.) 577 (1872) (sale by insolvent retail shop owner of all of his inventory in a single transaction held to be fraudulent); Cole v. Mercantile Trust Co., 133 N.Y. 164, 30 N.E. 847 (1892) (transfer of all property before plaintiff could obtain a judgment held to be fraudulent); Lumpkins v. McPhee, 59 N.M. 442, 286 P.2d 299 (1955) (although transfer of all assets said to indicate fraud, transfer held not to be fraudulent because full consideration was paid and transferor surrendered possession).    Whether the debtor had absconded: In re Thomas, 199 F. 214 (N.D.N.Y. 1912) (when debtor collected all of his money and property with the intent to abscond, fraudulent intent was held to be shown).    Whether the debtor had removed or concealed assets: Bentley v. Young, 210 F. 202 (S.D.N.Y. 1914), aff'd, 223 F. 536 (2d Cir. 1915) (debtor's removal of goods from store to conceal their whereabouts and to sell them held to render sale fraudulent); Cioli v. Kenourgios, 59 Cal.App. 690, 211 P. 838 (1922) (debtor's sale of all assets and shipment of proceeds out of the country held to be fraudulent notwithstanding adequacy of consideration).    Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred: Toomay v. Graham, 151 S.W.2d 119 (Mo.App. 1941) (although mere inadequacy of consideration said not to be a badge of fraud, transfer held to be fraudulent when accompanied by badges of fraud); Texas Sand Co. v. Shield, 381 S.W.2d 48 (Tex. 1964) (inadequate consideration said to be an indicator of fraud, and transfer held to be fraudulent because of inadequate consideration, pendency of suit, family relationship of transferee, and fact that all nonexempt property was transferred); Weigel v. Wood, 355 Mo. 11, 194 S.W.2d 40 (1946) (although inadequate consideration said to be a badge of fraud, transfer held not to be fraudulent when inadequacy not gross and not accompanied by any other badge; fact that transfer was from father to son held not sufficient to establish fraud).    Whether the debtor was insolvent or became insolvent shortly after the transfer was made or obligation was incurred: Harris v. Shaw, 224 Ark. 150, 272 S.W. 2d 53 (1954) (insolvency of transferor said to be a badge of fraud and transfer held fraudulent when accompanied by other badges of fraud); Bank of Sun Prairie v. Hovig, 218 F.Supp. 769 (W.D. Ark. 1963) (although the insolvency of the debtor said to be a badge of fraud, transfer held not fraudulent when debtor was shown to be solvent, adequate consideration was paid, and good faith was shown, despite the pendency of suit); Wareheim v. Bayliss, 149 Md. 103, 131 A. 27 (1925) (although insolvency of debtor acknowledged to be an indicator of fraud, transfer held not to be fraudulent when adequate consideration was paid and whether debtor was insolvent in fact was doubtful).    Whether the transfer occurred shortly before or shortly after a substantial debt was incurred: Commerce Bank of Lebanon v. Halladale A Corp., 618 S.W. 2d 288, 292 (Mo.App. 1981) (when transferors incurred substantial debts near in time to the transfer, transfer was held to be fraudulent due to inadequate consideration, close family relationship, the debtor's retention of possession, and the fact that almost all the debtor's property was transferred).       The effect of the two transfers described in § 4(b)(11) (section 38-8-105 (2)(k) in C.R.S.), if not avoided, may be to permit a debtor and a lienor to deprive the debtor's unsecured creditors of access to the debtor's assets for the purpose of collecting their claims while the debtor, the debtor's affiliate or insider, and the lienor arrange for the beneficial use or disposition of the assets in accordance with their interests. The kind of disposition sought to be reached here is exemplified by that found in Northern Pacific Co. v. Boyd, 228 U.S. 482 (1913), the leading case in establishing the absolute priority doctrine in reorganization law. There the Court held that a reorganization whereby the secured creditors and the management-owners retained their economic interests in a railroad through a foreclosure that cut off claims of unsecured creditors against its assets was in effect a fraudulent disposition (id. at 502-05). See Frank, Some Realistic Reflections on Some Aspects of Corporate Reorganization, 19 Va. L.Rev. 541, 693 (1933). For cases in which an analogous injury to unsecured creditors was inflicted by a lienor and a debtor, see Jackson v. Star Sprinkler Corp. of Florida, 575 F.2d 1223, 1231-34 (8th Cir. 1978); Heath v. Helmick, 173 F.2d 157, 161-62 (9th Cir. 1949); Toner v. Nuss, 234 F.S. 457, 461-62 (E.D.Pa. 1964); and see In re Spotless Tavern Co., Inc., 4 F.Supp. 752, 753, 755 (D.Md. 1933).    Nothing in § 4(b) (section 38-8-105 (2) in C.R.S.) is intended to affect the application of § 2-402(2), 9-205, 9-301, or 6-105 of the Uniform Commercial Code. Section 2-402(2) recognizes the generally prevailing rule that retention of possession of goods by a seller may be fraudulent but limits the application of the rule by negating any imputation of fraud from “retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification.” Section 9-205 explicitly negates any imputation of fraud from the grant of liberty by a secured creditor to a debtor to use, commingle, or dispose of personal property collateral or to account for its proceeds. The section recognizes that it does not relax prevailing requirements for delivery of possession by a pledgor. Moreover, the section does not mitigate the general requirement of § 9-301(1)(b) that a nonpossessory security interest in personal property must be accompanied by notice-filing to be effective against a levying creditor. Finally, like the Uniform Fraudulent Conveyance Act this Act does not pre-empt the statutes governing bulk transfers, such as Article 6 of the Uniform Commercial Code. Compliance with the cited sections of the Uniform Commercial Code does not, however, insulate a transfer or obligation from avoidance. Thus a sale by an insolvent debtor for less than a reasonably equivalent value would be voidable under this Act notwithstanding compliance with the Uniform Commercial Code.     ANNOTATION   The Colorado Uniform Fraudulent Transfer Act (CUFTA) changes the common law rule that a claim of conspiracy to fraudulently convey property fails unless the claimant establishes a lien against the property transferred. Double Oak Constr., L.L.C. v. Cornerstone Dev. Int'l, L.L.C., 97 P.3d 140 (Colo. App. 2003).   The principle behind the “lien requirement” rule is that, until a creditor obtains a lien giving him or her vested or specific rights in the debtor's property, the debtor is legally free to do what he or she will with his or her property. However, modern fraudulent transfer law, like CUFTA, has dispensed with the lien requirement, focusing instead on the debtor's intent to frustrate the creditor once its claim is made known. Double Oak Constr., L.L.C. v. Cornerstone Dev. Int'l, L.L.C., 97 P.3d 140 (Colo. App. 2003).   A transfer in violation of CUFTA is a legal wrong that will support a conspiracy claim. A creditor who does not have a lien on the subject property is nevertheless entitled to assert a civil conspiracy cause of action against persons who participate in a fraudulent conveyance. Double Oak Constr., L.L.C. v. Cornerstone Dev. Int'l, L.L.C., 97 P.3d 140 (Colo. App. 2003).   For purposes of CUFTA, the intent of a transferee can be imputed to the debtor when the transferee is in a position to dominate or control the disposition of the debtor's property. Schempp v. Lucre Mgmt. Group, 18 P.3d 762 (Colo. App. 2000).   The transferee's intent is not interchangeable or synonymous with the debtor's intent. Schempp v. Lucre Mgmt. Group, 75 P.3d 1157 (Colo. App. 2003).   Nothing in this section indicates that the plaintiff's burden of proving fraudulent intent may be reduced by attaching a presumption of fraud to a transaction between a principal and an agent. Schempp v. Lucre Mgmt. Group, 75 P.3d 1157 (Colo. App. 2003).   Whether a debtor intended to hinder, delay, or defraud creditors is a question of fact. The movant has the burden of proving all elements of a fraudulent transfer before the debtor must come forward to prove his or her defenses. Krol v. Unglaub, 332 B.R. 303 (Bankr. N.D. Ill. 2005).   Evidence that transactions were in the ordinary course of business may negate the actual intent element of fraudulent transfer. Sender v. Mann, 423 F. Supp. 2d 1155 (D. Colo. 2006 ).   In determining whether a transfer is made with actual intent to defraud, CUFTA sets forth several factors, known as the “badges of fraud”, from which an inference of fraudulent intent may be drawn. Krol v. Unglaub, 332 B.R. 303 (Bankr. N.D. Ill. 2005).   When these “badges of fraud” are present in sufficient number, they may give rise to an inference or presumption of an intent to defraud. Krol v. Unglaub, 332 B.R. 303 (Bankr. N.D. Ill. 2005).   Separate findings are not required on each of the “badges of fraud” in subsection (2) where the findings and the record make it clear that the court was aware of and considered many, if not all, of such factors. Silverberg v. Colantuno, 991 P.2d 280 (Colo. App. 1998).   “Reasonably equivalent value” is not the same as market value, although market value is an important factor to be used in the assessment. Silverberg v. Colantuno, 991 P.2d 280 (Colo. App. 1998).   Whether “reasonably equivalent value” has been received is a question of fact. What constitutes “reasonably equivalent value” for the transfer requires an analysis of all of the facts and circumstances surrounding the transaction. The standard of reasonably equivalent value implies a rule of reasonableness in light of the particular circumstances. Reasonable equivalence is not synonymous with market value, even though market value is an important factor to be utilized in the assessment. For purposes of the Colorado Uniform Fraudulent Transfer Act, equity looks to the substance of the transaction rather than its form. Krol v. Unglaub, 332 B.R. 303 (Bankr. N.D. Ill. 2005).   A transfer for which the transferor received no direct or indirect benefit cannot be considered reasonably equivalent value, even with the undisputed history of the transfers of the property back and forth between a husband and wife for zero dollars. Leverage Leasing Co. v. Smith, 143 P.3d 1164 (Colo. App. 2006).   Reserve asset was not unreasonably small and was therefore not constructively fraudulent under subsection (1)(b)(I). In dispute over real estate commission between real estate broker and judgment debtor, broker failed to show that debtor should have reasonably foreseen that its distribution of proceeds from real estate sale would create an unreasonable risk of insolvency. CB Richard Ellis, Inc. v. CLGP, LLC, 251 P.3d 523 (Colo. App. 2010).   In considering whether distribution of proceeds from real estate sale was constructively fraudulent under subsection (1)(b)(II), trial court applied the proper two-pronged test, consisting of both a subjective and an objective prong. In dispute over real estate commission between real estate broker and judgment debtor, trial court's finding that debtor did not have an intent or belief that it would be unable to pay entire commission addressed the subjective prong. With regard to the objective prong, trial court found that debtor's reserve asset was reasonable to pay its debts as they came due. CB Richard Ellis, Inc. v. CLGP, LLC, 251 P.3d 523 (Colo. App. 2010).   The failure to pay the taxes due results in a forfeiture of the original owner's interest in the property, by operation of law, to the state, which then grants title to the property to the holder of the lien free and clear of any other claims. Because the state transferred the tax deeds free of all prior interests, there was no transfer by a debtor, as is required to violate CUFTA. In re Grandote Country Club Co., 252 F.3d 1146 (10th Cir. 2001).   Where property was acquired through a regularly conducted tax sale subject to a competitive bidding procedure, the tax sale constitutes transfer for “reasonably equivalent value” under CUFTA. In re Grandote Country Club Co., 252 F.3d 1146 (10th Cir. 2001).   The recording of a mortgage is a transfer under CUFTA. Krol v. Unglaub, 332 B.R. 303 (Bankr. N.D. Ill. 2005).   Debtor's assets of between $785,000 and $800,000 were unreasonably small in relation to an allegedly fraudulent transfer under subsection (1)(b)(I) where the debtor was exposed to $2 million in liability. Tiger v. Anderson, 976 P.2d 308 (Colo. App. 1998).   A subsidiary's loan payments on behalf of its corporate parent are made in exchange for reasonably equivalent value if the subsidiary receives a benefit of the loan made to its parent. Ciccarelli v. Guaranty Bank, 99 P.3d 85 (Colo. App. 2004).   Applied in Vickery v. Evelyn V. Trumble Living Trust, 277 P.3d 864 (Colo. App. 2011); In re Blair, 594 B.R. 712 (Bankr. D. Colo. 2018 ); Wilson v. Pauling, 457 F. Supp. 3d 965 (D. Colo. 2020 ).