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Fraudulent Conveyances 2021

In Kootenay Savings Credit Union v Brar 2021 BCSC 2027 the court found that the defendant fraudulently conveyed his property to delay, hinder or defraud  creditors under the Fraudulent Conveyance Act, and set aside the transaction.

Facts
The defendant G. Brar in November 2017 transferred his half-interest in a 10-acre residential farm property in Abbotsford (the “Property”) to the co-defendants – his ex-wife and their adult daughters– for “$1.00 and natural love and affection.”
The declared market value of the Property was $2,000,000.
At the time of the transfer G. Brar was under severe financial and legal pressure.
The plaintiff credit union in 2015 had obtained judgment against him personally for $1,496,637, plus interest and costs.

 

The Law

The FCA consists of two brief sections, which set out the claim and a defence:
Fraudulent conveyance to avoid debt or duty of others
1 If made to delay, hinder or defraud creditors and others of their just and lawful remedies
(a) a disposition of property, by writing or otherwise,
(b) a bond,
(c) a proceeding, or
(d) an order
is void and of no effect against a person or the person’s assignee or personal representative whose rights and obligations are or might be disturbed, hindered, delayed or defrauded, despite a pretence or other matter to the contrary.

2 This Act does not apply to a disposition of property for good consideration and in good faith lawfully transferred to a person who, at the time of the transfer, has no notice or knowledge of collusion or fraud.

Abakhan & Associates Inc. v Braydon Investments Ltd., 2009 BCCA 521 leave to appeal ref’d [2010] SCCA No 26, is the leading case.

In Jasmur Holdings Ltd. v Callaghan, 2019 BCSC 1966 at para 17, Giaschi J summarised its key principles:

a) The FCA is to be construed liberally (para. 62);
b) An intent to put one’s assets beyond the reach of creditors is all that is required to void a transaction (para. 73);
c) A dishonest intent or mala fides is not a necessary element to void a transaction under s.1 of the FCA (para. 65);
d) Intent is a state of mind and a question of fact (para. 74);
e) Intent can be proven by direct evidence of the transferor’s intent as well as by inferences from the transferor’s conduct, the effect of the transfer and other circumstances (para. 80);
f) Where a transfer of property has the effect of delaying, hindering or defeating creditors, the necessary intent is presumed (paras. 58-59 and 75);
g) Inadequate consideration paid for the transferred property may be indicative of fraudulent intent (para.76);
h) It is not necessary to show the transferor was insolvent at the time of the transfer (para. 60);
i) It is not necessary for the applicant to show he/she was a creditor at the time of the transfer; future creditors are also protected (paras. 78 and 87]; and
j) It is no defence that the transfer was also in furtherance of a legitimate business objective (paras. 84-85).

A transaction may be voided as fraudulent absent particular findings of moral blameworthiness on the part of transferor or transferee. Wu emphasises that the only intention required is to move assets out of creditors’ reach:

In Abakhan & Associates Inc. v. Braydon Investments Ltd., 2009 BCCA 521 at para. 73, the court explained that, although the requisite intent in the FCA has often been described as fraudulent intent:
The only intent now necessary to avoid a transaction under the modern version of the [FCA] is the intent to “put one’s assets out of the reach of one’s creditors” (per RBC v. Clarke [2009 BCSC 481 at para 20]). No further dishonest or morally blameworthy intent is required.

Thus, the question is not whether the transferor had dishonest or morally blameworthy intent. Similarly, a sham transfer is not required. As the Court of Appeal said in Chan v. Stanwood, 2002 BCCA 474 at para. 24, there is no “comprehensive definition of fraudulent conveyances – [they] may be as varied as the imagination of a creative debtor allows”.

The effect of a transfer is a key factor when determining fraudulent intention: Cabaniss v. Cabaniss, 2009 BCSC 1478 at para. 53. In this regard, the intent to put assets out of the reach of creditors is persuasively shown where the transfer has the effect of putting assets out of reach of creditors.

In Abakhan, the court held: that  intent is a state of mind and a question of fact.

In addition, the transferor’s intent to put assets out of the reach of creditors need not be their only intent.

The victim of a fraud almost always suffers from a significant knowledge imbalance. The law seeks to counteract this vulnerability by imposing on the defendant an evidentiary duty to rebut prima facie suspicious circumstances, referred to in the jurisprudence as “badges of fraud.” Where one or more badges of fraud exist, the requisite fraudulent intent is presumed. The burden of proof then shifts to the defendant to rebut the presumption of fraudulent intent, by establishing that the transaction was made in good faith and for good consideration, and not with the intention of putting one’s assets out of creditors’ reach.

Badges of Fraud

In Balfour v Tarasenko, 2019 BCSC 2212 at para 60 Hori J provides a non-exhaustive list of badges of fraud, itself based on the list provided in Banton v Westcoast Landfill Diversion Corp. et al., 2004 BCCA 293 at para 5:

a) where a transfer of property has the effect of delaying, hindering, or defeating creditors, the necessary intent is presumed;
b) inadequate consideration paid for the transferred property may be indicative of fraudulent intent;
c) a transfer that renders the transferor unable to meet his then existing liabilities or which divests the transferor of all or a substantial portion of his or her assets may be indicative of an intent to defraud creditors;
d) a transfer between related parties in suspicious circumstances may be an indication of an intent to defeat creditors unless the parties present an adequate explanation;
e) the state of the debtor’s financial affairs at the time of the transaction, including his income, assets, and debts, may indicate a specific intention;
f) a transfer of property made in haste may be indicative of a fraudulent intent; and
g) a transfer of property made at a time when a debt or claim against the transferor is in existence or is imminent may be indicative of an intent to defraud creditors.

The badges of fraud inform the analysis under both ss. 1 and 2 of the FCA: Wu at para 88.

Where the defendant transferor alleges that the property in question is held in trust for the defendant transferee, the parties’ conduct and treatment of the property after the alleged trust must be carefully scrutinised: Sangha v Reliance Investment Group Ltd., 2011 BCSC 1324 at para 353.

Where the putative transferor continues to treat the property as their own following the putative trust, it may be evidence of a sham, and thus, in this context, a fraudulent conveyance: Forsyth (Re), 2010 BCSC 1720 at para 24.

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