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(i) received less than a reasonably equivalent value in exchange for such transfer or obliga-
                              tion; and


                          (ii)

                                 (I) was insolvent on the date that such transfer was made or such obligation was in-
                                     curred, or became insolvent as a result of such transfer or obligation;  fn 5


                                 (II) was engaged in business or a transaction, or was about to engage in business or a
                                     transaction, for which any property remaining with the debtor was an unreasona-
                                     bly small capital; or

                                 (III)   intended to incur, or believed that the debtor would incur, debts that would be
                                     beyond the debtor’s ability to pay as such debts matured; or  fn 6

                                 (IV)    made such transfer to or for the benefit of an insider, or incurred such obliga-
                                     tion to or for the benefit of an insider, under an employment contract and not in
                                     the ordinary course of business.

               Though the three tests described in (I) through (III) of Section 548(a)(1)(B)(ii) are typically referred to
               by practitioners and the courts as the "three solvency tests," the authors believe that "tests of financial
               condition" is a more appropriate way to describe them. This is because an assessment of solvency or in-
               solvency is technically the test defined in Section 101(32)(A) of the Bankruptcy Code (as well as in state
               fraudulent transfer law), which represents only the first of the three tests referenced (with the other two
               tests being (1) a capital adequacy test and (2) an ability to pay debts as they mature test). Furthermore,
               and as stated previously, Section 101(32)(A) of the Bankruptcy Code defines the term insolvent as a "fi-
               nancial condition (emphasis added) such that the sum of such entity’s debts is greater than all of such
               entity’s property, at a fair valuation." Accordingly, the term "tests of financial condition" is synonymous
               with the term "three solvency tests," but the former more accurately characterizes the nature of all three
               tests, two of which do not involve solvency.

               Similar tests also apply under state fraudulent transfer law. The vast majority of state fraudulent transfer
               law is based on either the UFTA or the UFCA, but adaptations from the model acts are made in each
               state. Accordingly, it is essential that practitioners understand the governing state statute and the manner
               in which the statute has been applied in the relevant jurisdictions.

        Reasonably Equivalent Value

               Before assessing whether the debtor has triggered one of the three tests of financial condition, it is nec-
               essary to assess whether the debtor "received less than a reasonably equivalent value in exchange for





        fn 5   The financial condition of insolvency is defined in the Bankruptcy Code in Section 101(32)(A). The term insolvent is also defined
        under state fraudulent transfer law in virtually all states. Although the various definitions may use slightly different terminology, the
        meaning of the definitions is essentially the same; that is, insolvency is a financial condition where the sum of an entity’s debts is
        greater than all of its assets, at a fair valuation.

        fn 6   In some states, only two of the three tests of financial condition are considered for certain causes of action filed pursuant to fraud-
        ulent transfer law.


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