Fraudulent Conveyances/Transfers

The issue of whether a transfer of assets gratuitously made is a Fraudulent Conveyance or not vis a vis creditors is found in the caselaw arising from the Fraudulent Conveyance Act (FCA).

Section 2 of the FCA provides:

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.

Two key questions arise when determining the validity of the Transfer: (1) whether there was good consideration for the Transfer, and (2) whether the defendants had the requisite intent.

A conveyance of property by a debtor to a creditor to satisfy an antecedent debt is made for good consideration and not void for fraud. As explained long ago by the Supreme Court of Canada in Mulcahy v. Archibold (1898), 28 S.C.R. 523, at 529(para.3):

… So long as there is an existing debt and the transfer to him is made for the purpose of securing that debt and he does not either directly or indirectly make himself an instrument for the purpose of subsequently benefitting the transferor, he is protected and the transaction cannot be held void.

[ The Court of Appeal relied on this proposition more recently in First Royal Enterprises Ltd. v. Armadillo’s Restaurant Ltd. (1995), 15 B.C.L.R. (3d) 254, 1995 CanLII 605 (C.A.) at para. 31, confirming that a pre¬existing debt can furnish good consideration within the meaning of the FCA, and so long as the debt is honestly due and owing, there is good consideration.

Where valuable consideration has passed, the party seeking to impeach the Transfer must show that the transferee actively participated in the fraud: Meeker Cedar Products Ltd. v. Edge (1968), 68 D.L.R. (2d) 294, 1968 CanLll 666 (B.C.C.A.) at 299, aff’d (1968), 1 D.L.R. (3d) 240, 1968 CanLII 776 (S.C.C.); First Royal Enterprises at para. 24; and Chan v. Stanwood, 2002 BCCA 474 at para. 20.

A bare assertion of a defence is insufficient to meet the applicant’s burden of establishing a “meritorious defence”. The applicant’s affidavit material should contain sufficient detail and supporting documents to buttress the asserted defence: Leibenzeder Estate v. MacIntyre, 2023 BCSC 1422 at para. 183.

The applicant must provide, by admissible evidence, sufficient detail to allow the chambers judge to determine whether a meritorious defence exists: Forgotten Treasures International Inc. v. Lloyd’s Underwiters, 2020 BCCA 341 at paras. 26–30.

The only intent necessary to meet the requirements of section 1 of the FCA is to “put one’s assets out of reach of one’s creditors”: Royal Bank of Canada v. Clarke, 2009 BCSC 481 at para. 20. No further dishonest or morally blameworthy intent is required: Abakhan & Associates Inc. v. Braydon Investments Ltd., 2009 BCCA 521 at para. 73.

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