2006 Utah Code - 31A-27-321 — Voidable preferences and liens.

     31A-27-321.   Voidable preferences and liens.
     (1) (a) As used in this chapter, "preference" means a transfer of any of the property of an insurer to or for the benefit of a creditor, for or on account of an antecedent debt, made or allowed by the insurer within one year before the filing of a successful petition for rehabilitation or liquidation under this chapter, the effect of which transfer may enable the creditor to obtain a greater percentage of his debt than another creditor of the same class would receive. If a liquidation order is entered while the insurer is already subject to a rehabilitation order, transfers otherwise qualifying are considered to be preferences if they are made or allowed within one year before the filing of the successful petition for rehabilitation or within two years before the filing of the successful petition for liquidation, whichever time is shorter.
     (b) Any preference may be avoided by the rehabilitator or liquidator, if:
     (i) the insurer was insolvent at the time of the transfer;
     (ii) the transfer was made within four months before the filing of the petition;
     (iii) the creditor receiving it or to be benefited by it or his agent acting with reference to the transfer had, at the time when the transfer was made, reasonable cause to believe that the insurer was or was about to become insolvent; or
     (iv) the creditor receiving it was an officer, an employee, an attorney, or other person who was in fact in a position of comparable influence in the insurer to an officer, or any shareholder holding directly or indirectly more than 5% of any class of equity security issued by the insurer, or any other person with whom the insurer did not deal at arm's length.
     (c) Where the preference is voidable, the rehabilitator or liquidator may recover the property or, if it has been converted, its value, from any person who has received or converted the property, except that he may not recover from a bona fide purchaser from or lienor of the debtor's transferee for a present fair consideration. Where a bona fide purchaser or lienor has given less than fair consideration, the bona fide purchaser or lienor has a lien upon the property to the extent of the consideration actually given by him. Where a preference by way of lien or security title is voidable, the court may, on due notice, order the lien or title to be preserved for the benefit of the estate, in which event the lien or title passes to the liquidator.
     (d) Any payment to which Subsection 31A-5-415 (2) applies is a preference and is voidable under Subsection (1)(b) if it is made within the time period specified in Subsection (1)(a), except that payments made by insurers for the purchase of insurance under Section 16-10a-302 are not preferences.
     (2) Subsection 31A-27-320(2) applies to the perfection of transfers.
     (3) Subsection 31A-27-320(3) applies to liens by legal or equitable proceedings.
     (4) The receiver may not avoid a transfer of property under this section for or because of:
     (a) a new and contemporaneous consideration;
     (b) the payment, within 45 days after a debt is incurred, of a debt incurred in the ordinary course of the business of the insurer and according to normal business terms;
     (c) a transfer of a security interest in property to enable the insurer to acquire the property and which is perfected within ten days after the security interest attaches;
     (d) a transfer to or for the benefit of a creditor to the extent that after the transfer, the creditor gave new value not secured by an unavoidable security interest and on account of which the insurer did not make an unavoidable transfer to or for the benefit of the creditor; or
     (e) a transfer of a perfected security interest in inventory or a receivable or the proceeds of either, except to the extent that the aggregate of all of those types of transfers to the transferee

caused a reduction of the amount by which the debt secured by the security interest exceeded the value of the security interest four months prior to the date of liquidation or any time subsequent to the liquidation.
     (5) The receiver may avoid a transfer of property of the insurer transferred to secure reimbursement of a surety that furnished a bond or other obligation to dissolve a judicial lien that would have been avoidable by the receiver under Subsection (1)(b). The liability of the surety under the bond or obligation shall be discharged to the extent of the value of the property recovered by the receiver or the amounts paid to the receiver.
     (6) The property affected by any lien which is considered voidable under Subsection (1)(b) and Subsection (5) is discharged from the lien, and that property and any of the indemnifying property transferred to or for the benefit of a surety passes to the rehabilitator or liquidator, except that the court may, on due notice, order the lien to be preserved for the benefit of the estate and the court may direct that a conveyance be executed which is adequate to evidence the title of the rehabilitator or liquidator.
     (7) The court has jurisdiction of any proceeding by the rehabilitator or liquidator, to hear and determine the rights of any parties under this section. Reasonable notice of any hearing in the proceeding shall be given to all parties in interest, including the obligee of a releasing bond or other similar obligation. Where an order is entered for the recovery of indemnifying property in kind or for the avoidance of an indemnifying lien, the court, upon application of any party in interest, shall in the same proceeding ascertain the value of the property or lien, and if the value is less than the amount for which the property is indemnity or than the amount of the lien, the transferee or lienholder may elect to retain the property or lien upon payment of its value, as ascertained by the court, to the rehabilitator or liquidator within those reasonable times as fixed by the court.
     (8) The liability of a surety under a releasing bond or other similar obligation is discharged to the extent of the value of the indemnifying property recovered or the indemnifying lien nullified and avoided or, where the property is retained under Subsection (7) to the extent of the amount paid to the rehabilitator or liquidator.
     (9) If a creditor has been preferred and afterward in good faith gives the insurer further credit without security of any kind, for property which becomes a part of the insurer's estate, the amount of the new credit remaining unpaid at the time of the petition shall be setoff against the preference which would otherwise be recoverable from him.
     (10) If an insurer, directly or indirectly, within four months before the filing of a successful petition for rehabilitation or liquidation under this chapter or at any time in contemplation of a proceeding to rehabilitate or liquidate it, pays money or transfers property to an attorney at law for services rendered or to be rendered, the transaction may be examined by the court on its own motion or shall be examined by the court on petition of the rehabilitator or liquidator and shall be held valid only to the extent the transfer is a reasonable amount as determined by the court. The excess may be recovered by the rehabilitator or liquidator for the benefit of the estate. If the attorney meets the description in Subsection (1)(b)(iv), that subsection applies in place of this subsection.
     (11) (a) Every officer, manager, employee, shareholder, member, subscriber, attorney, or any other person acting on behalf of the insurer who knowingly participates in giving any preference when he has reasonable cause to believe the insurer is or is about to become insolvent at the time of the preference, is personally liable to the rehabilitator or liquidator for the amount of

the preference. It is permissible to infer that there is reasonable cause to so believe if the transfer was made within four months before the date of filing the successful petition for rehabilitation or liquidation.
     (b) Every person receiving any property from the insurer or for the benefit of the insurer as a preference which is voidable under Subsection (1)(b) is personally liable for that transfer and property and is bound to account to the rehabilitator or liquidator.
     (c) This subsection does not prejudice any other claim by the rehabilitator or liquidator against any person.

Amended by Chapter 277, 1992 General Session