§ 27-14.3-32 - Voidable preferences and liens. - Rhode Island Statutes

SECTION 27-14.3-32

   § 27-14.3-32  Voidable preferences andliens. – (a) A preference is a transfer of any of the property of an insurer to or forthe benefit of a creditor, for or on account of an antecedent debt, made orsuffered by the insurer within one year before the filing of a successfulpetition for liquidation under this chapter, the effect of which transfer maybe to enable the creditor to obtain a greater percentage of this debt thananother creditor of the same class would receive. If a liquidation order isentered while the insurer is already subject to a rehabilitation order, thenthe transfers shall be deemed preferences if made or suffered within one yearbefore the filing of the successful petition for rehabilitation, or within two(2) years before the filing of the successful petition for liquidation,whichever time is shorter;

   (2) Any preference may be avoided by the liquidator if:

   (i) The insurer was insolvent at the time of the transfer;

   (ii) The transfer was made within four (4) months before thefiling of the petition;

   (iii) The creditor receiving it or to be benefited by it orhis or her agent acting with reference to it had, at the time when the transferwas made, reasonable cause to believe that the insurer was insolvent or wasabout to become insolvent; or

   (iv) The creditor receiving it was an officer, or anyemployee or attorney or other person who was in fact in a position ofcomparable influence in the insurer to an officer whether or not he or she heldthe petition, or any shareholder holding directly or indirectly more than fivepercent (5%) of any class of any equity security issued by the insurer, or anyother person, firm, corporation, association, or aggregation of persons withwhom the insurer did not deal at arm's length;

   (3) Where the preference is voidable, the liquidator mayrecover the property or, if it has been converted, its value from any personwho has received or converted the property; provided, that where a bona fidepurchaser or lienor has given less than fair equivalent value, he or she shallhave a lien upon the property to the extent of the consideration actually givenby him or her. Where a preference by way of lien or security title is voidable,the court may on due notice order the lien or title preserved for the benefitof the estate, in the event the lien or title shall pass to the liquidator.

   (b) A transfer of property other than real property shall bedeemed made or suffered when it becomes so far perfected that no subsequentlien obtainable by legal or equitable proceedings on a simple contract couldbecome superior to the rights of the transferee;

   (2) A transfer of real property shall be deemed made orsuffered when it becomes so far perfected that no subsequent bona fidepurchaser from the insurer could obtain rights superior to the rights of thetransferee;

   (3) A transfer which creates an equitable lien shall not bedeemed perfected if there are available means by which a legal lien could becreated;

   (4) A transfer not perfected prior to the filing of apetition for liquidation shall be deemed made immediately before the filing ofthe successful petition;

   (5) The provisions of this subsection apply whether or notthere are or were creditors who might have obtained liens or persons who mighthave become bona fide purchasers.

   (c) A lien obtainable by legal or equitable proceedings upona simple contract is one arising in the ordinary course of the proceedings uponthe entry or docketing of a judgment or decree, or upon attachment,garnishment, execution, or a similar process, whether before, upon, or afterjudgment or decree and whether before or upon levy. It does not include liensthat under applicable law are given a special priority over other liens whichare prior in time;

   (2) A lien obtainable by legal or equitable proceedings couldbecome superior to the rights of a transferee or a purchaser could obtainrights superior to the rights of a transferee, within the meaning of subsection(b) of this section, if the consequences would follow only from the lien orpurchase itself, or from the lien or purchase followed by any step whollywithin the control of the lienholder or purchaser, with or without the aid ofministerial action by public officials. That lien could not become superior andthat purchase could not create superior rights for the purpose of subsection(b) of this section through any acts subsequent to the obtaining of the lien orsubsequent to the purchase which require the agreement or concurrence of anythird party or which require any further judicial action or ruling.

   (d) A transfer of property for or on account of a new andcontemporaneous consideration which is deemed under subsection (b) of thissection made or suffered after the transfer because of delay in perfecting itdoes not by this become a transfer for or on account of an antecedent debt ifany acts required by the applicable law to be performed in order to perfect thetransfer as against liens or bona fide purchasers' rights are performed withintwenty-one (21) days or any period expressly allowed by the law, whichever isless. A transfer to secure a future loan, if the loan is actually made, or atransfer, which becomes security for a future loan, shall have the same effectas a transfer for or on account of a new and contemporaneous consideration.

   (e) If any lien deemed voidable under subdivision (a)(2) ofthis section has been dissolved by the furnishing of a bond or otherobligation, the surety on which has been indemnified directly or indirectly bythe transfer of or the creation of a lien upon any property of an insurerbefore the filing of a petition under this chapter which results in aliquidation order, the indemnifying transfer or lien shall also be deemedvoidable.

   (f) The property affected by any lien deemed voidable undersubsections (a) and (e) of this section shall be discharged from the lien, andthat property and any of the indemnifying property transferred to or for thebenefit of a surety shall pass to the liquidator, except that the court may ondue notice order any lien preserved for the benefit of the estate and the courtmay direct that conveyance executed as may be proper or adequate to evidencethe title of the liquidator.

   (g) The superior court for the county of Providence shallhave summary jurisdiction of any proceeding by the liquidator to hear anddetermine the rights of any parties under this section. Reasonable notice ofany hearing in the proceeding shall be given to all parties in interest,including the obligee of a releasing bond or other similar obligation. Where anorder is entered for the recovery of indemnifying property in kind or for theavoidance of an indemnifying lien the court, upon application of any party ininterest, shall in the same proceeding ascertain the value of the property orlien, and if the value is less than the amount for which the property isindemnity or than the amount of the lien, the transferee or lienholder mayelect to retain the property or lien upon payment of its value, as ascertainedby the court, to the liquidator, within any reasonable times as the court shallfix.

   (h) The liability of the surety under a releasing bond orother similar obligation shall be discharged to the extent of the value of theindemnifying property recovered or the indemnifying lien nullified and avoidedby the liquidator, or where the property is retained under subsection (g) ofthis section to the extent of the amount paid to the liquidator.

   (i) If a creditor has been preferred, and afterward in goodfaith gives the insurer further credit without security of any kind forproperty which becomes a part of the insurer's estate, the amount of the newcredit remaining unpaid at the time of the petition may be set off against thepreference which would be recoverable from him or her.

   (j) If an insurer, directly or indirectly, within one yearbefore the filing of a successful petition for liquidation under this chapter,or at any time in contemplation of a proceeding to liquidate it, pays money ortransfers property to an attorney at law for services rendered or to berendered, the transactions may be examined by the court on its own motion orshall be examined by the court on petition of the liquidator and shall be heldvalid only to the extent of a reasonable amount to be determined by the court,and the excess may be recovered by the liquidator for the benefits of theestate; provided, that where the attorney is in a position of influence in theinsurer or an affiliate of the insurer, payment of any money or the transfer ofany property to the attorney at law for services rendered or to be renderedshall be governed by the provision of subdivision (a)(2)(iv) of this section.

   (k) Every officer, manager, employee, shareholder, member,subscriber, attorney, or any other person acting on behalf of the insurer whoknowingly participates in giving any preference when he or she has reasonablecause to believe the insurer is or is about to become insolvent at the time ofthe preference shall be personally liable to the liquidator for the amount ofthe preference. It is permissible to infer that there is a reasonable cause tobelieve this if the transfer was made within four (4) months before the date offiling of this successful petition for liquidation;

   (2) Every person receiving any property from the insurer orthe benefit of the property as a preference voidable under subsection (a) ofthis section shall be personally liable for it and shall be bound to account tothe liquidator;

   (3) Nothing in this subsection shall prejudice any otherclaim by the liquidator against any person.