§ 26.1-06.1-27 — Voidable preferences and liens

North Dakota § 26.1-06.1-27

• Jurisdiction: North Dakota
• Title 26.1: Insurance
• Ch. 26.1-06.1: Insurance Company Rehabilitation and Liquidation

Text

1. a. A preference is 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 suffered by the
insurer within one year before the filing of a successful petition for liquidation
under this chapter, the effect of which transfer may be to enable the creditor to
obtain a greater percentage of this 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, then such transfers must be deemed preferences if made
or suffered 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 liquidator if:
(1) The insurer was insolvent at the time of the transfer;
(2) The transfer was made within four months before the filing of the petition;
(3) The creditor receiving it or to be benefited thereby or the creditor's agent
acting with reference thereto had, at the time when the transfer was made,
reasonable cause to believe that the insurer was insolvent or was about to
become insolvent; or
(4) The creditor receiving it was an officer, or any employee or attorney or other
person who was in fact in a position of comparable influence in the insurer
to an officer, whether or not that person held such position, or any
shareholder holding directly or indirectly more than five percent of any class
of any equity security issued by the insurer, or any other person, firm,
corporation, limited liability company, association, or aggregation of persons
with whom the insurer did not deal at arm's length.
c. When the preference is voidable, the liquidator may recover the property or, if it
has been converted, the liquidator may recover its value from any person who
has received or converted the property; except when a bona fide purchaser or
lienor has given less than fair equivalent value, the bona fide purchaser or lienor
shall have a lien upon the property to the extent of the consideration actually
given by the bona fide purchaser or lienor. If 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 shall pass to
the liquidator.
2. a. A transfer of property other than real property must be deemed to be made or
suffered when it becomes so far perfected that no subsequent lien obtainable by
legal or equitable proceedings on a simple contract could become superior to the
rights of the transferee.
b. A transfer of real property must be deemed to be made or suffered when it
becomes so far perfected that no subsequent bona fide purchaser from the
insurer could obtain rights superior to the rights of the transferee.
c. A transfer which creates an equitable lien may not be deemed to be perfected if
there are available means by which a legal lien could be created.
d. A transfer not perfected prior to the filing of a petition for liquidation must be
deemed to be made immediately before the filing of the successful petition.
e. The provisions of this subsection apply whether or not there are or were creditors
who might have obtained liens or persons who might have become bona fide
purchasers.
3. a. A lien obtainable by legal or equitable proceedings upon a simple contract is one
arising in the ordinary course of such proceedings upon the entry or docketing of
a judgment or decree, or upon attachment, garnishment, execution, or like

process, whether before, upon, or after judgment or decree and whether before
or upon levy. It does not include liens which under applicable law are given a
special priority over other liens which are prior in time.
b. A lien obtainable by legal or equitable proceedings could become superior to the
rights of a transferee, or a purchaser could obtain rights superior to the rights of a
transferee within the meaning of subsection 2, if such consequences would follow
only from the lien or purchase itself, or from the lien or purchase followed by any
step wholly within the control of the respective lienholder or purchaser, with or
without the aid of ministerial action by public officials. Such a lien could not,
however, become superior and such a purchase could not create superior rights
for the purpose of subsection 2 through any acts subsequent to the obtaining of
such a lien or subsequent to such a purchase which require the agreement or
concurrence of any third party or which require any further judicial action or ruling.
4. A transfer of property for or on account of a new and contemporaneous consideration,
which is deemed under subsection 2 to be made or suffered after the transfer because
of delay in perfecting it, does not thereby become a transfer for or on account of an
antecedent debt if any acts required by the applicable law to be performed in order to
perfect the transfer as against liens or bona fide purchasers' rights are performed
within twenty-one days or any period expressly allowed by the law, whichever is less. A
transfer to secure a future loan, if such a loan is actually made, or a transfer which
becomes security for a future loan, has the same effect as a transfer for or on account
of a new and contemporaneous consideration.
5. If any lien deemed voidable under subdivision b of subsection 1 has been dissolved by
the furnishing of a bond or other obligation, the surety on which has been indemnified
directly or indirectly by the transfer of or the creation of a lien upon any property of an
insurer before the filing of a petition under this chapter which results in a liquidation
order, the indemnifying transfer or lien must also be deemed voidable.
6. The property affected by any lien deemed voidable under subsections 1 and 5 must be
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 liquidator, except that the
court may on due notice order any such lien to be preserved for the benefit of the
estate and the court may direct that such conveyance be executed as may be proper
or adequate to evidence the title of the liquidator.
7. The district court shall have summary jurisdiction of any proceeding by the liquidator to
hear and determine the rights of any parties under this section. Reasonable notice of
any hearing in the proceeding must be given to all parties in interest, including the
obligee of a releasing bond or other like obligation. When 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 less than the amount of the lien, the transferee or
lienholder may elect to retain the property or lien upon payment to the liquidator of its
value, as ascertained by the court, within such reasonable times as the court shall fix.
8. The liability of the surety under a releasing bond or other like obligation must be
discharged to the extent of the value of the indemnifying property recovered or the
indemnifying lien nullified and avoided by the liquidator, or, when the property is
retained under subsection 7, to the extent of the amount paid to the 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 may
be set off against the preference which would otherwise be recoverable from the
creditor.
10. If an insurer, directly or indirectly, within four months before 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 or transfers property to an attorney at law for
services rendered or to be rendered, the transactions may be examined by the court

on its own motion or must be examined by the court on petition of the liquidator and
must be held valid only to the extent of the reasonable amount to be determined by the
court, and the excess may be recovered by the liquidator for the benefits of the estate
provided that when the attorney is in a position of influence in the insurer or an affiliate
thereof, payment of any money or the transfer of any property to the attorney at law for
services rendered or to be rendered must be governed by the provision of paragraph 4
of subdivision b of subsection 1.
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 that person has reasonable cause to believe the
insurer is insolvent or is about to become insolvent at the time of the preference
is personally liable to the liquidator for the amount of the preference. It is
permissible to infer that there is a reasonable cause to believe the insurer is
insolvent or is about to become insolvent if the transfer was made within four
months prior to the date of filing of the successful petition for liquidation.
b. Every person receiving any property from the insurer or the benefit thereof as a
preference voidable under subsection 1 is personally liable therefor and is bound
to account to the liquidator.
c. Nothing in this subsection prejudices any other claim by the liquidator against any
person.