REPRESENTATIVES Flowers, Martin, Seitz, Setzer, Allen

To amend section 3903.28 of the Revised Code to

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lengthen the time period during which the

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liquidator of an insolvent insurance company may

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void certain preferential transfers of property by

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the company to a creditor.

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BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section 1. That section 3903.28 of the Revised Code be	6
amended to read as follows:	7

Sec. 3903.28.  (A)(1) A preference is a transfer of any of	8
the property of an insurer or of an interest in the property of an	9
insurer to or for the benefit of a creditor, for or on account of	10
an antecedent debt, made or suffered by the insurer within one	11
yeartwo years before the filing of a successful complaint for	12
liquidation under sections 3903.01 to 3903.59 of the Revised Code,	13
the effect of which transfer may be to enable the creditor to	14
obtain a greater percentage of his debt than another creditor of	15
the same class would receive. If a liquidation order is entered	16
while the insurer is already subject to a rehabilitation order,	17
then such transfer shall be deemed preferences if made or suffered	18
within one year before the filing of the successful complaint for	19
rehabilitation, or within two years before the filing of the	20
successful complaint for liquidation, whichever time is shorter	21
date that enables the creditor to receive more than the creditor	22
would receive if the insurer was liquidated under this chapter,	23
the transfer had not been made, and the creditor received payment	24
of the debt to the extent provided by the provisions of this	25
chapter.	26

(2) Any preference may be avoided by the liquidator if any of	27
the following apply:	28

(a) The insurer was insolvent at the time of the transfer;

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(b) The transfer was made within four monthsone hundred	30
twenty days before the filing of the complaint date;	31

(c) The creditor receiving it or to be benefited thereby or	32
histhe creditor's agent acting with reference thereto had, at the	33
time when the transfer was made, reasonable cause to believe that	34
the insurer was insolvent or was about to become insolvent;	35

(d) The creditor receiving it was an officer, or any of the	36
following:	37

(i) An officer or director of the insurer;

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(ii) A person, including but not limited to an employee or	39
attorney or other person, who was in fact in a position of	40
comparable influence into effect a level of control over the	41
actions of the insurer comparable to that of an officer or	42
director whether or not hethe person held such position, or any	43
excluding employees of the department of insurance and any person	44
retained or appointed by the department to assist in the	45
examination, supervision, or other regulation or monitoring of the	46
insurer;	47

(iii) A shareholder holding directly or indirectly more than	48
five per cent of any class of any equity security issued by the	49
insurer, or any;	50

(iv) Any other person, firm, corporation, association, or	51
aggregation of persons with whom the insurer did not deal at arm's	52
length.	53

(3) Where the preference is voidable, the liquidator may	54
recover the property or the value of the property from the initial	55
transferee, and if itthe property has been transferred or	56
converted, itsthe liquidator may recover the property or the	57
value of the property from any person who has received or	58
converted the property, except that a bona fide purchaser or	59
lienor who has given consideration of less than fair equivalent	60
value has a lien upon the property to the extent of the	61
consideration actually given. Where a preference by way of lien or	62
security title is voidable, the court may on due notice order the	63
such lien or title to beis preserved for the benefit of the	64
estate, in which event the lien or title shall pass to the	65
liquidator.	66

(4) The liquidator may not avoid a transfer under this	67
section as provided by the following:	68

(a) To the extent that the transfer was intended, by both the	69
insurer and the creditor to or for whose benefit the transfer was	70
made, to be a contemporaneous exchange for new value given to the	71
insurer and was in fact a substantially contemporaneous exchange;	72

(b) To the extent that the transfer was in payment of a debt	73
incurred by the insurer in the ordinary course of business or	74
financial affairs of the insurer and the transferee and the	75
transfer both was made in the ordinary course of business or	76
financial affairs of the insurer and the transferee and was made	77
according to ordinary business terms;	78

(c) If the transfer was made to or for the benefit of a	79
creditor, to the extent that after the transfer the creditor gave	80
new value to or for the benefit of the insurer not secured by an	81
otherwise avoidable security interest, on account of which new	82
value the insurer did not make an otherwise unavoidable transfer	83
to or for the benefit of such creditor.	84

(B)(1) A transfer of property other than real property is	85
deemed to be made or suffered when it becomes so far perfected	86
that no subsequent lien obtainable by legal or equitable	87
proceedings on a simple contract can become superior to the rights	88
of the transferee.	89

(2) A transfer of real property is deemed to be made or	90
suffered when it becomes so far perfected that no subsequent bona	91
fide purchaser from the insurer can obtain rights superior to the	92
rights of the transferee.	93

(3) A transfer which creates an equitable lien is not deemed	94
to be perfected if there are available means by which a legal lien	95
can be created.	96

(4) A transfer not perfected prior to the filing of a	97
complaint for liquidationdate is deemed to be made immediately	98
before the filing of the successful complaint date.	99

(5) The provisions of division (B) of this section apply	100
whether or not there are or were creditors who might have obtained	101
liens or persons who might have become bona fide purchasers.	102

(C)(1) A lien obtainable by legal or equitable proceedings	103
upon a simple contract is one arising in the ordinary course of	104
such proceedings upon the entry or docketing of a judgment or	105
decree, or upon attachment, garnishment, execution, or like	106
process, whether before, upon, or after judgment or decree and	107
whether before or upon levy. It does not include liens which under	108
applicable law are given a special priority over other liens which	109
are prior in time.	110

(2) A lien obtainable by legal or equitable proceedings is	111
superior to the rights of a transferee, or a purchaser may obtain	112
rights superior to the rights of a transferee within the meaning	113
of division (B) of this section, if such consequences follow only	114
from the lien or purchase itself, or from the lien or purchase	115
followed by any step wholly within the control of the respective	116
lienholder or purchaser, with or without the aid of ministerial	117
action by public officials. Such a lien is not, however, superior	118
and such a purchase does not create superior rights for the	119
purpose of division (B) of this section through any acts	120
subsequent to the obtaining of such a lien or subsequent to such a	121
purchase which require the agreement or concurrence of any third	122
party or which require any further judicial action or ruling.	123

(D) A transfer of property for or on account of a new and	124
contemporaneous consideration that is deemed under division (B) of	125
this section to be made or suffered after the transfer because of	126
delay in perfecting it does not thereby become a transfer for or	127
on account of an antecedent debt if any acts required by the	128
applicable law to be performed in order to perfect the transfer as	129
against liens or bona fide purchasers' rights are performed within	130
twenty-one days or any period expressly allowed by the law,	131
whichever is less. A transfer to secure a future loan, if such a	132
loan is actually made, or a transfer which becomes security for a	133
future loan, has the same effect as a transfer for or on account	134
of a new and contemporaneous consideration.	135

(E) If any lien deemed voidable under division (A)(2) of this	136
section has been dissolved by the furnishing of a bond or other	137
obligation, the surety on which has been indemnified directly or	138
indirectly by the transfer of or the creation of a lien upon any	139
property of an insurer before the filing of a complaint under	140
sections 3903.01 to 3903.59 of the Revised Code which results in a	141
liquidation orderdate, the indemnifying transfer or lien is also	142
deemed voidable.	143

(F) The property affected by any lien deemed voidable under	144
divisions (A) and (E) of this section is discharged from such	145
lien, and that property and any of the indemnifying property	146
transferred to or for the benefit of a surety passes to the	147
liquidator, except that the court may on due notice order any such	148
lien to be preserved for the benefit of the estate and the court	149
may direct that such conveyance be executed as may be proper or	150
adequate to evidence the title of the liquidator.	151

(G) The Franklin county court of common pleas has exclusive	152
jurisdiction of any proceeding by the liquidator to hear and	153
determine the rights of any parties under this section. Reasonable	154
notice of any hearing in the proceeding shall be given to all	155
parties in interest, including the obligee of a releasing bond or	156
other like obligation. Where an order is entered for the recovery	157
of indemnifying property in kind or for the avoidance of an	158
indemnifying lien, the court, upon motion of any party in	159
interest, shallmay in the same proceeding ascertain the value of	160
the property or lien, and if the value is less than the amount for	161
which the property is indemnity or than the amount of the lien,	162
the transferee or lienholder may elect to retain the property or	163
lien upon payment of its value, as ascertained by the court, to	164
the liquidator, within such reasonable times as the court shall	165
fix.	166

(H) The liability of a surety under a releasing bond or other	167
like obligation shall be discharged to the extent of the value of	168
the indemnifying property recovered or the indemnifying lien	169
nullified and avoided by the liquidator, or where the property is	170
retained under division (G) of this section to the extent of the	171
amount paid to the liquidator.	172

(I) If a creditor has been preferred, and afterward in good	173
faith gives the insurer further credit without security of any	174
kind, for property which becomes a part of the insurer's estate,	175
the amount of the new credit remaining unpaid at the time of the	176
complaint may be set off against the preference which would	177
otherwise be recoverable from him.	178

(J) If an insurer shall, directly or indirectly, within four	179
monthsone hundred twenty days before the filing of a successful	180
complaint for liquidation under sections 3903.01 to 3903.59 of the	181
Revised Codedate, or at any time in contemplation of a proceeding	182
to liquidate it, pay money or transfer property to an	183
attorney-at-law for services rendered or to be rendered, the	184
transaction may be examined by the court on its own motion or	185
shall be examined by the court on motion of the liquidator and	186
shall be held valid only to the extent of a reasonable amount to	187
be determined by the court, and the excess may be recovered by the	188
liquidator for the benefit of the estate provided that where the	189
attorney is in a position of influence in the insurer or an	190
affiliate thereof, payment of any money or the transfer of any	191
property to the attorney-at-law for services rendered or to be	192
rendered shall be governed by the provisions of division (A)(2) of	193
this section.	194

(K)(1) Every officer, manager, employee, shareholder, member,	195
subscriber, attorney, or any other person acting on behalf of the	196
insurer who knowingly participates in giving any preference when	197
he has reasonable cause to believe the insurer is or is about to	198
become insolvent at the time of the preference shall be personally	199
liable to the liquidator for the amount of the preference. It	200
shall be presumed that there is reasonable cause to so believe if	201
the transfer was made within four months before the date of filing	202
of the successful complaint for liquidation.	203

(2)(J) As to every transfer subject to avoidance under this	204
section:	205

(1) Every person receiving any property from the insurer or	206
the benefit thereof as a preference voidable under division (A) of	207
this section shall be personally liable for the property and shall	208
be bound to account to the liquidator.	209

(3)(2) The liquidator has the burden of proving that a	210
transfer under division (A)(2) of this section is voidable, and	211
the person against which recovery or voidability is sought has the	212
burden of proving that a transfer under division (A)(4) of this	213
section is not voidable.	214

(3) The fact that the insurer was under examination,	215
supervision, or other regulatory oversight by the department of	216
insurance, or that the department may have acquiesced in or	217
approved any payments made by the insurer, does not effect or	218
otherwise create a defense to avoidance of a transfer voidable	219
under this section.	220

(K) Nothing in this division shall be construed to prejudice	221
any other claim by the liquidator against any person.	222

(L) As used in this section:

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(1) "Complaint date" means the date on which a complaint is	224
filed by the superintendent of insurance seeking the liquidation	225
of an insurer, if the complaint results in an order of	226
liquidation. If the insurer is placed in rehabilitation, which	227
rehabilitation is later converted to liquidation, the "complaint	228
date" is the date on which the original complaint seeking	229
rehabilitation was filed.	230

(2) "New value" means money or money's worth in goods,	231
services, new credit, or the release by a transferee of property	232
previously transferred to the transferee in a transaction that is	233
neither void nor voidable by the liquidator under any applicable	234
law, including the proceeds of the transferred property, but does	235
not include an obligation substituted for an existing obligation.	236

Section 2. That existing section 3903.28 of the Revised Code	237
is hereby repealed.	238