1 Fraudulent Conveyance To Avoid Debt Or Duty Of Others

CASE LAW

No Dishonest or Morally Blameworthy Intent Required

Botham Holdings Ltd. (BHL), as general partner, entered into a business venture with a third party for the purpose of taking advantage of a capital cost allowance claim. In order to protect assets that were not required for the business venture, BHL transferred funds to Braydon Investments Ltd. (Braydon). BHL and Braydon were owned by B and B’s family trust. At all times, B was the directing mind of both BHL and Braydon. After the business venture went into bankruptcy, the trustee in bankruptcy brought this action under the Fraudulent Conveyance Act claiming that one of the purposes of the transfer of funds was to put the assets of BHL out of reach of its creditors. In affirming the trial court’s decision, the Court of Appeal agreed that, since the repeal of the penal provisions in the Act in 1987, it was no longer necessary to establish mala fides on the part of the transferor and the words “by collusion, guile, malice or fraud” in s. 1 of the Act should be struck. (Note: These words were subsequently removed from s. 1 in a statutory amendment that took effect on March 29, 2012.) Since 1987, the purpose of the Act has been to provide a civil remedy for creditors disadvantaged by the conduct of their debtors. As such, no dishonest or morally blameworthy intent was required. In order to void a transaction under the Act, it was necessary to prove only intent “to put one’s assets out of reach of one’s creditors”. In acting as he did to transfer assets to Braydon, there was no evidence that B acted with dishonest intent. However, in dismissing B’s appeal, the Court of Appeal affirmed that a transaction that is the result of an honest intent to defeat one’s creditors is precisely one of the situations caught by the Act (Abakhan & Associates Inc. v. Braydon Investments Ltd., 2009 BCCA 521, leave to appeal refused 2010 CanLII 34795 (SCC)).

Fraudulent Conveyance Ineffective as Against All Creditors

In earlier matrimonial proceedings, the appellant had obtained an order that required her former husband, M, to pay child support arrears. At that time, the trial court also found that M had fraudulently conveyed a property to his second wife, D. Subsequently, the appellant registered her costs judgment in the matrimonial proceedings against the property owned by D who was now divorced from M. D declared bankruptcy, the property was sold, and the trustee in bankruptcy was holding the sale proceeds. In this appeal, the appellant argued that her remedies under the Fraudulent Conveyance Act were not limited to the child support arrears. The Court of Appeal agreed. Once a conveyance has been found to infringe the Act, it remains fraudulent and is ineffective as against all creditors who may be hindered or delayed. The appellant should not be required to return to court to have the same transaction declared void again in order to enforce additional judgments. The court ordered the trustee in bankruptcy to make the remaining sale proceeds available to the appellant to the extent necessary to enforce her costs order and any other judgment she might have against M (Guthrie v. Abakhan & Associates Inc., ).

Fraudulent Conveyance to Beneficial Owner Not Possible

It is not possible to fraudulently convey legal title to a person who already holds the beneficial interest. The reason is that such a transfer would not delay, hinder, or defraud any creditors (Vancouver Coastal Health Authority v. Moscipan, 2019 BCCA 17).