A.R.S. tit. 44 ch. 8 — Arizona Revised Statutes Title 44 Chapter 8 — Transactions And Transfers Affecting The Interest Of Creditors

44-1001. Definitions In this article, unless the context otherwise requires: 1. "Asset" means property of a debtor, but asset does not include any of the following: (a) Property to the extent it is encumbered by a valid lien. (b) Property to the extent it is generally exempt under nonbankruptcy law. (c) An interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant. 2. "Claim" means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. 3. "Creditor" means a person who has a claim. 4. "Debt" means liability on a claim. 5. "Debtor" means a person who is liable on a claim. 6. "Lien" means a charge against or an interest in property to secure payment of a debt or performance of an obligation and includes a security interest created by agreement, a judicial lien obtained by legal or equitable process or proceedings, a common law lien or a statutory lien. 7. "Person" means an individual, partnership, corporation, association, organization, government or governmental subdivision or agency, business trust, estate, trust or any other legal or commercial entity. 8. "Property" means anything that may be the subject of ownership. 9. "Transfer" means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset and includes payment of money, release, lease and creation of a lien or other encumbrance. 10. "Valid lien" means a lien that is effective against the holder of a judicial lien subsequently obtained by legal or equitable process or proceedings and that is not subject to avoidance under this article. 44-1002. Insolvency A. A debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets at a fair valuation. B. A debtor who is generally not paying his debts as they become due is presumed to be insolvent. C. A partnership is insolvent under subsection A if the sum of the partnership's debts is greater than the aggregate, at a fair valuation, of all of the partnership's assets and the sum of the excess of the value of each general partner's nonpartnership assets over the partner's nonpartnership debts. D. Assets under this section do not include property that has been transferred, concealed or removed with intent to hinder, delay or defraud creditors or that has been transferred in a manner making the transfer voidable under this article. E. Debts under this section do not include an obligation to the extent it is secured by a valid lien on property of the debtor not included as an asset. F. Debts under this section include the full amount of the debtor's potential liability under contracts of guarantee and surety. The assets of the debtor shall include a fair valuation of the rights of the debtor in connection with the contracts under indemnity or similar agreements and under equitable principles, including contribution and subrogation. 44-1003. Value A. Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise to furnish support to the debtor or another person unless the promise is made in the ordinary course of the promisor's business. B. For the purposes of section 44-1004, subsection A, paragraph 2 and section 44-1005, a person gives a reasonably equivalent value if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the interest of the debtor on default under a mortgage, deed of trust or security agreement. C. A transfer is made for present value if the exchange between the debtor and the transferee is intended by them to be contemporaneous and is in fact substantially contemporaneous. 44-1004. Transfers fraudulent as to present and future creditors A. 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 under any of the following: 1. With actual intent to hinder, delay or defraud any creditor of the debtor. 2. Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either: (a) 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. (b) Intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due. B. In determining actual intent under subsection A, paragraph 1, consideration may be given, among other factors, to whether: 1. The transfer or obligation was to an insider. 2. The debtor retained possession or control of the property transferred after the transfer. 3. The transfer or obligation was disclosed or concealed. 4. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit. 5. The transfer was of substantially all of the debtor's assets. 6. The debtor absconded. 7. The debtor removed or concealed assets. 8. 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. 9. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred. 10. The transfer occurred shortly before or shortly after a substantial debt was incurred. 11. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. 44-1005. Transfers fraudulent as to present creditors A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. 44-1006. When transfer is made or obligation is incurred For the purposes of this article: 1. A transfer is made: (a) With respect to an asset that is real property other than a fixture, but including the interest of a seller or purchaser under a contract for the sale of the asset, when the transfer is so far perfected that a good faith purchaser of the asset from the debtor against whom applicable law permits the transfer to be perfected cannot acquire an interest in the asset that is superior to the interest of the transferee. (b) With respect to an asset that is not real property or that is a fixture, when the transfer is so far perfected that a creditor on a simple contract cannot acquire a judicial lien through attachment, garnishment levy or other process otherwise than under this article that is superior to the interest of the transferee. 2. If applicable law permits the transfer to be perfected as provided in paragraph 1 and the transfer is not so perfected before the commencement of an action for relief under this article, the transfer is deemed made immediately before the commencement of the action. 3. If applicable law does not permit the transfer to be perfected as provided in paragraph 1, the transfer is made when it becomes effective between the debtor and the transferee. 4. A transfer is not made until the debtor has acquired rights in the asset transferred. 5. An obligation is incurred: (a) If oral, when it becomes effective between the parties. (b) If evidenced by a writing, when the writing executed by the obligor is delivered to or for the benefit of the obligee. 44-1007. Remedies of creditors A. In an action for relief against a transfer or obligation under this article, a creditor, subject to the limitations in sections 44-1008 and 44-1009, may obtain one or more of the following remedies: 1. Garnishment against the fraudulent transferee or the recipient of the fraudulent obligation, in accordance with the procedure prescribed by law in obtaining such remedy. 2. Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim. 3. An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by law in obtaining such remedy. 4. Subject to applicable principles of equity and in accordance with applicable rules of civil procedure: (a) An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property. (b) Appointment of a receiver to take charge of the asset transferred or of other property of the transferee. (c) Any other relief the circumstances may require. B. Subject to the limitations in sections 44-1008 and 44-1009, if a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds. 44-1008. Defenses, liability and protection of transferee A. A transfer or obligation is not voidable under section 44-1004, subsection A, paragraph 1 against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee. B. Except as otherwise provided in this section, to the extent a transfer is voidable in an action by a creditor under section 44-1007, subsection A, paragraph 1, the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection C of this section, or the amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against either: 1. The first transferee of the asset or the person for whose benefit the transfer was made. 2. Any subsequent transferee other than a good faith transferee who took for value or from any subsequent transferee. C. If the judgment under subsection B of this section is based on the value of the asset transferred, the judgment must be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require. D. Notwithstanding voidability of a transfer or an obligation under this article, a good faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to any of the following: 1. A lien on or a right to retain any interest in the asset transferred. 2. Enforcement of any obligation incurred. 3. A reduction in the amount of the liability on the judgment. E. A transfer is not voidable under section 44-1004, subsection A, paragraph 2 or section 44-1005 if the transfer results from: 1. Termination of a lease on default by the debtor if the termination is pursuant to the lease and applicable law. 2. Enforcement of a security interest in compliance with title 47, chapter 9. 44-1009. Extinguishment of claim for relief A claim for relief with respect to a fraudulent transfer or obligation under this article is extinguished unless an action is brought: 1. Under section 44-1004, subsection A, paragraph 1 within four years after the transfer was made or the obligation was incurred or, if later, within one year after the fraudulent nature of the transfer or obligation was or through the exercise of reasonable diligence could have been discovered by the claimant. 2. Under section 44-1004, subsection A, paragraph 2 or section 44-1005, within four years after the transfer was made or the obligation was incurred. 44-1010. Supplementary provisions Unless displaced by the provisions of this article, the principles of law and equity, including the law merchant and the law relating to principal and agent, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake, insolvency or other validating or invalidating cause, supplement its provisions. 44-1031. Effect of assignment for the benefit of creditors; acknowledgment and recording; invalidity of assignments not made in accordance with this article A. Every assignment made by an insolvent debtor, or in contemplation of insolvency, for the benefit of his creditors, shall provide, except as otherwise provided in this article, for a distribution of all his real and personal property other than that which is by law exempt from execution, among all his creditors in proportion to their respective claims. However the assignment is made or expressed, it shall have such effect and shall be construed to pass all such property, whether or not specified therein. B. Every assignment for the benefit of creditors shall be acknowledged and recorded in the manner provided by law for conveyances of real or other property. C. Assignments for the benefit of creditors under the common law are declared contrary to the public policy of the state and are abolished, and all assignments for the benefit of creditors are void and of no force and effect unless made in accordance with the provisions of this article. 44-1032. Assignment for the benefit of consenting creditors; effect; execution of release by creditors Any debtor desiring to do so may make an assignment for the benefit of such of his creditors only as will consent to accept their proportional share of his estate, and discharge him from their respective claims. In such case the benefits of the assignment shall be limited and restricted to the creditors consenting thereto. The debtor shall thereupon be discharged from all further liability to the consenting creditors on account of their respective claims, and when paid they shall execute and deliver to the assignee, for the debtor, a release therefrom. 44-1033. Filing of assignment; accompanying inventory of property and indebtedness required; docketing of assignment by clerk A. The debtor shall forthwith file with the clerk of the superior court of the county where the principal place of business of the debtor is located a copy of the assignment, to which shall be annexed an inventory containing: 1. A true and full account of all the creditors of the debtor or debtors. 2. The place of residence of each creditor, if known to the debtor or debtors, and if not known, such fact shall be stated. 3. The amount owing each creditor and the nature of each debt or demand, whether arising on written security, account or otherwise. 4. The true cause of and consideration for each such indebtedness and the place where the indebtedness arose. 5. Any judgment, mortgage, collateral or other security for the payment of the debt. 6. A full and true inventory of all the debtor's property at the date of the assignment, both real and personal, in law or equity, and all encumbrances thereon, and of all vouchers and securities relating thereto, and the value of such property according to the best knowledge of the debtor. B. An affidavit shall be made by the debtor, and shall be annexed to and delivered with the inventory or schedule, that the inventory or schedule is in all respects just and true according to his best knowledge and belief. C. No provision of this article shall affect the assignor's right to retain property exempt from execution by the law of this state. The list and inventory shall not be conclusive except as against the debtor making it. D. The clerk shall docket the assignment as an action in probate. The qualifications of assignees shall be those prescribed for administrators of estates. 44-1034. Recording of deed of assignment by assignee; bond of assignee; recording; actions upon bond; duty of assignee to execute assignment A. The assignee shall forthwith, after execution and delivery of the deed of assignment, record it as provided in this article, and execute a bond with securities in an amount determined and approved by the judge of the superior court of the county where the assignment is recorded, or if in more than one county, then in the county where the principal place of business of the debtor is located, conditioned that the assignee will faithfully discharge his duties as assignee, and that he will make proportional distribution of the net proceeds of the property among the creditors entitled thereto. B. The bond shall be payable to the state of Arizona and shall be filed with the county recorder. It shall inure to the benefit of the assignor and the creditors, who may maintain an action thereon, in his or their own name, jointly or severally, for any breach thereof. C. Upon the filing of the bond the assignee shall take possession of the assigned property and execute the assignment. 44-1035. Notice of appointment of assignee; publication The assignee shall, within thirty days after recording the assignment, give public notice of his appointment in some newspaper printed in the county where the assignor resides or where his principal business was conducted, and as far as possible, the assignee shall also give personal notice or notice by mail to each of the creditors. 44-1036. Powers of court with respect to assignee; removal of assignee; appointment of assignee to fill vacancy A. The relationship of the court having jurisdiction of the insolvent estate and the assignee for the benefit of creditors shall be governed by the provisions which govern the relationship of a superior court and a receiver. The court shall have the same authority and jurisdiction as it has over a receiver appointed by the court. B. If an assignee becomes unsuitable or refuses or neglects to perform the trust, or mismanages the property, the superior court may, upon application of the assignor or a creditor, upon reasonable notice by publication or otherwise to all parties interested, as the court directs, remove the assignee. C. In case of removal of the assignee or vacancy in the office by death or otherwise the court shall appoint another in his place who shall have the same powers and be subject to the same liabilities as the original assignee. 44-1037. Notice by creditors of consent to assignment; receipt by creditor of portion of claim as consent Creditors consenting to the assignment shall give the assignee written notice of consent within four months after publication of the notice required under section 44-1035, and a creditor not assenting shall not receive or take any benefit under the assignment. A creditor who has no actual notice of the assignment may make known his assent any time before any distribution of assets is made under the assignment. Receipt by a creditor of any portion of his claim from the assignee is conclusive evidence of the assent of such creditor to the assignment. 44-1038. Filing of statement of claim by creditors Every creditor, consenting to an assignment, shall, within six months from the time of the first publication of the notice of appointment of the assignee, file with the assignee a distinct statement of the particular nature and amount of his claim against the debtor, which shall be supported by an affidavit of the creditor, his agent or attorney, that the statement is true, that the debt is just and that there are no credits or offsets that should be allowed against the claim, except as shown by the statement. No creditor shall take any benefit under any assignment whatever who neglects to file this statement. 44-1039. Statement of claim by creditor as justification for payment by assignee; action to dispute claim; duty of assignee to permit creditor to inspect claims filed by other creditors A. The statement of a creditor, verified and filed with the assignee as provided in section 44-1038, shall justify the assignee in allowing the claim as a valid claim against the estate, and it shall be so allowed. B. A creditor entitled to his proportional share of the debtor's property, unless the assignor or other creditor disputing the claim shall, within sixty days after expiration of the time within which creditors are required to file their statements, commence an action in the superior court of the proper county to set aside the allowance and to restrain payment thereon. If it appears in such action that the claim or the disputed part thereof is not lawfully due, the claim shall be disallowed in whole or in part, and the assignee shall be restrained from paying the claim or any portion disallowed. C. The assignee shall permit any creditor to take a copy of any other creditor's statement of claim filed with the assignee. 44-1040. Discount of claims allowed but not due; amount payable on claim secured by collateral in possession of creditor Claims not due may be allowed at their present value by discounting them at the rate of interest mentioned in the contract, if any, otherwise at the legal rate. If any creditor holds collateral or security of less value than his debt, the value thereof may be estimated by the assignee and only the difference between such value and the amount of the debt shall be allowed. 44-1041. Right of assignee to property fraudulently conveyed by assignor; action by assignee or creditor to recover property fraudulently conveyed; non-recovery from bona fide purchaser All property conveyed or transferred by the assignor previous to and in contemplation of the assignment with the intent or design to defeat, delay or defraud creditors, or to give preference to one creditor over another, shall pass to the assignee by the assignment notwithstanding the transfer. The assignee, or in case of his neglect or refusal any creditor may, upon securing the assignee against cost or liability, in the name of the assignee, sue for, recover, collect and cause such property to be applied for the benefit of creditors as other property belonging to the debtor's estate in the hands of the assignee. If it appears in such action that the purchaser of such property bought it from the assignor in good faith for a valuable consideration and without reason to believe that the debtor was conveying or transferring the property with intent or design as set forth in this section, the purchaser shall be held to have acquired, as against the assignee and creditors, a good and valid title to the property. 44-1042. Failure of assignor to supply inventory as prima facie evidence of concealment of property by assignor; examination of assignor by court upon application of assignee or creditor A. No assignment shall be declared fraudulent or void for lack of an inventory or list as required under the provisions of this article, but if such list and inventory are not annexed and verified as provided in section 44-1033, it is prima facie evidence that the assignor has secreted and concealed some portion of his property from his assignee, unless, upon the demand of the assignee or a creditor, the verified inventory and list are furnished to the assignee. B. If an assignee or creditor has reason to believe that a debtor has concealed any of his property or estate for the purpose of defrauding creditors, the superior court shall, upon application of the assignee or creditor, cause the debtor to appear before it and disclose under oath any knowledge or information he has of such concealment. 44-1043. Attempted preference of creditor void Any attempted preference, in the assignment, of one creditor or creditors of the assignor, is fraudulent and without effect. 44-1044. Garnishment of assignee by nonconsenting creditor A creditor, not consenting to the assignment, may proceed by garnishment against the assignee for the excess of property remaining in his hands after payment to consenting creditors the amount of their debts and the costs and expenses of the assignment. 44-1045. Distribution to creditors; compensation and expenses allowed assignee A. When an assignee has in his possession funds of the estate of the assignor in an amount sufficient to pay ten per cent of the indebtedness of the assignor, he shall make a pro rata distribution of the funds among the creditors. B. The assignee shall receive reasonable compensation for his services and the necessary costs and expenses, including attorney's fees, of administering the assigned estate, to be allowed by the superior court. 44-1046. Final report by assignee; hearing; discharge of assignee; disposition of funds in estate at final settlement A. When the assignee has fully performed the duties of his trust and desires to be finally discharged therefrom, he shall make a report of his proceedings under the assignment. The report shall be under oath and shall set forth the money and assets which came into his possession, and how such assets were disbursed and disposed of. The assignee shall file the report in the office of the clerk of the superior court having jurisdiction of the insolvent estate. B. A hearing shall be held on the report after notice to each known creditor, which shall be mailed at least ten days before the hearing. Approval of the report by the court shall be conclusive in favor of the assignee to the same extent as approval of a report in the case of any other trust. C. When the trust is fully executed, the assignee may be discharged. Any monies or funds of the insolvent estate in the possession of the assignee at final settlement shall be deposited in the superior court subject to the judgment of the court. 44-1047. Fraudulent transactions by assignor; classification A. A person who makes an assignment for the benefit of creditors is guilty of a crime punishable as prescribed in subsection B, if he: 1. Secretes or conceals any property belonging to his estate, or parts with, conceals, destroys, alters, mutilates or falsifies a book, document or writing relating to such property or estate, or removes such property, book, document or writing, with intent to prevent it or any part thereof from coming into possession of the assignee or to hinder, impede or delay the assignee in recovering or receiving such property or book, document or writing. 2. Makes any payment, gift, sale, assignment, transfer or conveyance of any property belonging to his estate with intent to prevent it from coming into possession of the assignee or to hinder, impede or delay the assignee in recovering or receiving such property. 3. Spends any property belonging to his estate in gaming. 4. Knowingly and with the intent to defraud omits from his schedule any property or effects. 5. Has knowledge or belief of a false or fictitious debt proved against his estate and fails to disclose such knowledge or belief to his assignee within one month after acquiring such knowledge or belief. 6. Attempts by fictitious losses or expenses to account for any property belonging to his estate. 7. Within three months before making the assignment for the benefit of creditors, under the false pretense of carrying on business and dealing in the ordinary course of trade, obtains on credit, with intent to defraud, goods or chattels from any person. 8. Within three months before making the assignment for the benefit of creditors, with intent to defraud his creditors, pawns, pledges or disposes of, otherwise than by ordinary transactions in due course of business, any goods or chattels obtained on credit and which are unpaid for. 9. Previous to and in contemplation of making an assignment for the benefit of creditors, transfers any property with intent or design to defraud creditors. B. A person violating any provision of subsection A is guilty of a class 6 felony. 44-1061. Sale of chattels unaccompanied by change of possession as prima facie evidence of fraud against creditors and subsequent purchasers A. A sale made by a vendor of goods and chattels in his possession or under his control, or an assignment of goods and chattels, unless the sale or assignment is accompanied by an immediate delivery and followed by an actual and continued change of possession of the things sold or assigned, is prima facie evidence of fraud against creditors of the vendor, or creditors of the person making the assignment, or subsequent purchasers in good faith. B. The term "creditors" includes all persons who are creditors of the vendor or assignor at any time while such goods and chattels are in his possession or under his control.