Page 20 - Bankruptcy and Reorganization Services

Bankruptcy Code — Indubitable Equivalent

The Bankruptcy Code requires that a Chapter 11 plan must be fair and equitable to all holders of secured
claims and, in order to meet this standard, the plan must allow creditors to maintain their respective in-
terests in the property of interest. In circumstances where the debtor’s reorganization plan is accepted
over the objections of a secured creditor, the court must ensure the plan provides that secured creditors
receive the indubitable equivalent of their respective claims. fn 9

UFTA — Fair Valuation

Section 2(a) of the UFTA states, "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." The UFTA provides no definition of fair valuation, which is
frequently analyzed similarly to fair market value when evaluating solvency in states that have adopted
the UFTA. fn 10

UFTA — Reasonably Equivalent Value

The UFTA outlines certain conditions whereby transfers or obligations are fraudulent as to present and
future creditors. One of these conditions is that the transfer was made or the obligation was incurred
without the debtor receiving "a reasonably equivalent value in exchange for the transfer or obligation." fn
11 According to Section 3(a) of the UFTA, "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 made otherwise than in the ordinary course of the prom-
isor’s business to furnish support to the debtor or another person." The fair market values exchanged are
commonly used when evaluating reasonably equivalent value in states that have adopted the UFTA, as
they are under the Bankruptcy Code. However, as cited by the U.S. Supreme Court, reasonably equiva-
lent value is not always evaluated against a fair market value benchmark. fn 12

UFCA — Present Fair Saleable Value

Section 2(1) of the UFCA states, "[a] person is insolvent when the present fair saleable value of his as-
sets is less than the amount that will be required to pay his probable liability on his existing debts as they
become absolute and matured." One leading case interprets present fair saleable value to mean the value
that could be obtained if the assets were sold with reasonable promptness in an existing (not theoretical)
market. fn 13 Some jurisdictions have interpreted present fair saleable value to be similar to fair market
value, whereas other jurisdictions are of the view that the present fair saleable value standard imposes a
shortened marketing period.

fn 9 See 11 USC 1129(b)(2)(A).

fn 10 As of the writing of this practice aid, the authors’ research indicates the UFTA has replaced the UFCA in all jurisdictions with the
exception of New York, Maryland, and Wyoming.

fn 11 See UFTA Sections 4(a)(2) and 5(a).

fn 12 BFP v. Resolution Trust Corp., 511 U.S. 531, 548 (1994).

fn 13 See United States v. Gleneagles Inv. Co., 565 F. Supp. 556, 578 (M.D. Pa. 1983), aff'd sub nom. United States v. Tabor Court
Realty Corp., 803 F.2d 1288 (3d Cir. 1986), cert. denied, 483 U.S. 1005 (1987).

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