The provisions regarding transfer at undervalue were added by the 2005/2007 amendments to the BIA. They replace both the settlement provisions and the reviewable transactions provisions that formerly provided the means through which certain types of gifts and transfers at undervalue were impeachable. The wording and structure of the new provisions are similar to the reviewable transaction provisions in some respects, and so some of the case law under the older provision remains relevant when interpreting the new provisions.
The provisions regarding transfer at undervalue cover two different situations. The first involves cases where the debtor and the recipient are dealing at arm’s length; the second involves cases where the debtor and the recipient are not dealing at arm’s length. In both cases, the transaction that is being impeached must constitute a transfer at undervalue.
The BIA defines a transfer at undervalue as a disposition of property or provision of services for no consideration or for which the consideration received by the debtor is conspicuously less than the fair market value of the consideration given by the debtor.146The provision covers a wide range of dealings. The following transactions are examples of transactions that are potentially caught by the definition:
· the debtor makes a gift of an asset;
· the debtor sells an asset at a price less than its fair market value;
· the debtor buys an asset at a price greater than its fair market value;
· the debtor enters into a lease agreement as lessor at a rent less than its rental value;
· the debtor enters into a lease agreement as lessee at a rent greater than its rental value;
· the debtor supplies services for less than their fair market value;
· the debtor pays for services at greater than their fair market value;
· the debtor settles a claim against the debtor for more than its recoverable value; or
· the debtor agrees to accept a lesser sum in satisfaction of a claim owed to the debtor.
The definition of transfer at undervalue indicates that there must be a conspicuous disparity between the fair market value of the property or services and the amount given or received for it. The lack of any consideration at all flowing to the debtor is also covered. The trustee in bankruptcy must state his or her opinion as to the fair market value of the property or services and the value of the actual consideration given or received.147In the absence of any evidence to the contrary, the values stated by the trustee will be used. The recipient therefore carries the onus of establishing that some other value ought to be used.
The disparity must be such as to be plainly evident and attracting notice. This determination will depend upon all the facts of the case, and it is not subject to exact quantification. With this limitation in mind, some guidance can be obtained from cases that applied a substantially similar conspicuous disparity test under the now repealed
reviewable transaction provisions. A 17 percent difference was held to constitute a conspicuous disparity,148whereas a 6 percent difference was not.149
If the debtor and the recipient are dealing with one another at arm’s length, the transfer can be impeached only if the debtor was insolvent at the time of the transfer or was rendered insolvent by it and if the debtor intended to defraud, defeat, or delay a creditor. The time period for impeaching the transfer begins one year from the date of the initial bankruptcy event and ends on the date of the bankruptcy.150
This portion of the provision covers much of the same ground as fraudulent conveyance law. The provisions regarding transfer at undervalue are more restrictive than the Fraudulent Conveyances Act in two respects. First, the trustee must prove that the debtor was insolvent at the time of the transfer. This is not a requirement under...