KRS 304.33-310: Voidable preferences and liens.

Except as provided in KRS 304.33-055:

(1) Preferences.

(a) Preference defined. 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 (1) year before the filing of a

successful petition for liquidation under this subtitle, the effect of which

transfer may be to enable the creditor to obtain a greater percentage of his or

her 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,

transfers otherwise qualifying shall be deemed preferences if made or suffered

within one (1) year before the filing of the successful petition for

rehabilitation or within two (2) years before the filing of the s uccessful

petition for liquidation, whichever time is shorter.

(b) Invalidation of preferences. Except as provided in subsection (10) of this

section, 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 (4) months before the filing of the

petition;

3. The creditor receiving it or to be benefited thereby or his or her agent

acting with reference thereto had reasonable cause to believe at the time

when the transfer was made that the insurer was insolvent or was about

to become insolvent; or

4. The creditor receiving it was an officer, employee, attorney or other

person who was in fact in a position of comparable influence in the

insurer to an officer whether or not he or she held such position, or any

shareholder holding directly or indirectly more than five percent (5%) of

any class of any equity security issued by the insurer, or any other

person with whom the insurer did not deal at arm's length.

Where the preference is voidable, the liquidator may recover the property or,

if it has been converted, its value from any person who has received or

converted the property, except a bona fide purchaser from or lienor of the

debtor's transferee for a prese nt fair equivalent value. Where the bona fide

purchaser or lienor has given less than fair equivalent value, he or she shall

have a lien upon the property to the extent of the consideration actually given

by 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 to be preserved for the

benefit of the estate, in which event the lien or title shall pass to the liquidator;

(2) Perfection of transfers.

(a) Personal property. A transfer of property other than real property is 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) Real property. A transfer of real property is 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 transferee.

(c) Equitable liens. A transfer which c reates an equitable lien is not deemed to be

perfected if there are available means by which a legal lien could be created.

(d) Transfers not perfected prior to petition. A transfer not perfected prior to the

filing of a petition for liquidation shall be d eemed to be made immediately

before the filing of the successful petition.

(e) Actual creditors unnecessary. This subsection applies whether or not there

were creditors who might have obtained liens or persons who might have

become bona fide purchasers;

(3) Liens by legal or equitable proceedings.

(a) Definition. 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 att achment, 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) When liens are superior. 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) of this sect ion, 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 off icials. Such a lien could not,

however, become superior and such a purchase could not create superior

rights for the purpose of subsection (2) of this section 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) Twenty-one day rule. A transfer of property for or on account of a new and

contemporaneous consideration which is deemed under subsection (2) of this

section 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 t ransfer

as against liens or bona fide purchasers' rights are performed within twenty -one

(21) 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 becom es

security for a future loan shall have the same effect as a transfer for or on account

of a new and contemporaneous consideration;

(5) Indemnifying transfers also voidable. If any lien deemed voidable under paragraph

(b) of subsection (1) of this section 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 sub title which results in a liquidation order, the

indemnifying transfer or lien shall also be deemed voidable;

(6) Avoidance of lien. The property affected by any lien deemed voidable under

paragraph (b) of subsection (1) of this section and subsection (5) o f this section is

discharged from the lien, and that property and any of the indemnifying property

transferred to or for the benefit of a surety shall pass to the liquidator, except that

the court may on due notice order the lien to be preserved for the be nefit of the

estate and the court may direct that a conveyance be executed which is adequate to

evidence the title of the liquidator;

(7) Hearings to determine rights. The court shall have summary jurisdiction of any

proceeding by the liquidator to hear an d determine the rights of any parties under

this section. Reasonable notice of any hearing in the proceeding shall be given to all

parties in interest, including the obligee of a releasing bond or other like obligation.

Where an order is entered for the re covery 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 f or which the property is indemnity or than the

amount of the lien, the transferee or lienholder may elect to retain the property or

lien upon payment of its value, as ascertained by the court, to the liquidator within

such reasonable times as the court fixes;

(8) Surety's liability discharged. The liability of a surety under a releasing bond or

other like obligation shall be discharged to the extent of the value of the

indemnifying property recovered or the indemnifying lien nullified and avoided or,

where the property is retained under subsection (7) of this section to the extent of

the amount paid to the liquidator;

(9) Setoff of new advances. 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 him or her; and

(10) Federal home loan bank preferences. A liquidator shall not avoid any preference

arising under, or in connection with, a federal home loan bank security agreement

or any pledge agreement, security agreement, collateral agreement, guarantee

agreement, or other similar arrangement or credit enhancement relating to a security

agreement to which a federal home loan bank is a party.