Tag: fraudulent conveyance

25 Jun

Who Can Set Aside a Transaction Under the Fraudulent Conveyances Act?

Kira Domratchev Estate & Trust Tags: , , 0 Comments

The Fraudulent Conveyances Act, RSO 1990, c F.29 (the “FCA”) is designed to prevent a debtor from hiding assets from creditors by fraudulently transferring the assets to a third party. If the FCA applies, the Court shall make the property that was fraudulently conveyed available for creditors of the transferor.

Based on the general description and purpose of the FCA, it would appear as though it is a means of redress for frustrated creditors, only. However, that is not the case.

In accordance with section 2 of the FCA, the Court is authorized to set aside transactions that are entered into with the intent to defeat an action (amongst other things), for the benefit of “creditors and others”. The specific wording of this section of the FCA is as follows:

“Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful action, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.”

Although the FCA does not define what is meant by “others”, it is clear that the statute specifically delineates “others” to signify that it is a group of entities that could otherwise not be defined as “creditors”.

The Ontario Court of Appeal in Hopkinson v Westerman (1919) 45 OLR 208, 48 DLR 597 (ONCA) defined “others” as those persons who, though not judgment creditors, had pending actions in which they were sure to recover damages.

Since then, the definition of “others” has been used in many cases, including in the family law context, such that, a spouse could qualify as a person who is intended to be protected from conveyances of property made with the intent to defeat his or her interest.

The court in Robins v Robins Estate [2003] OTC 285, 121 ACWS (3d) 1104 (ONSC) held that a spouse who brought a claim against her husband’s Estate could not make a claim under the FCA.

The Court held that if the spouse was found to be a “creditor” it would have to be based on the Deceased’s obligation to support her as a spouse. The Court held that “[B]oth spouses have an obligation to support themselves and each other” and if the theory of the surviving spouse was accepted, spouses in a marriage would be in a “constant creditor-debtor relationship throughout cohabitation and marriage unable to alienate any property, the result of which may leave them unable to pay support at a later time.”

In deciding that the spouse in this matter was not a “creditor” the Court gave particular weight to the fact that the relationship was relatively short-term and that the spouse was able to support herself. In addition to that, the conveyance in question took place before the date of marriage, which reasonably made the surviving spouse’s argument that it was made with a fraudulent intent of defeating her support claim, all the more difficult.

In contrast, the Ontario Court of Appeal in Stone v Stone, 55 OR (3d) 491, [2001] OTC 412 (ONCA), in interpreting the same obligation of spouses to support themselves and each other, found, in the context of an election under section 6 of the Family Law Act, following the Deceased’s death, that the FCA did apply. Particular weight was placed on the fact that the Deceased did know that his wife would survive him and was aware that the value of her assets was less than the value of his and that she would not accept her legacy under the Will.

The Court in Robins v  Robins Estate found that the Stone v Stone decision was different because it addressed the claim of equalization of property rather than the issue of support under the Family Law Act. The Court further held that unlike the conveyance of property accumulated during a 24 year marriage in Stone v Stone, the case of Robins v Robins Estate addressed an asset owned by the Deceased before the cohabitation date and the marriage.

Of interest is the fact that the courts do not seem to significantly distinguish between the category of “creditors” and the category of “others”. Perhaps, if more of a difference is seen between the two, concerns regarding creating an overarching creditor-debtor relationship between spouses would not seem as significant.

The question remains whether the FCA category of “others” could extend to a spouse in the context of a claim as against an Estate? That remains to be seen, however, based on the assessment made by the courts in the two cases discussed, it very well could – it just depends on the factual circumstances.

Thanks for reading.

Kira Domratchev

Find this blog interesting? Please consider these other related posts:

Fraudulent Conveyance and The Estate Planning Defence

When is a Transfer of Property a Fraudulent Conveyance?

Hull on Estates #342 – Estate Freeze Considered as Fraudulent Conveyance

05 Dec

Fraudulent Conveyance and The Estate Planning Defence

David M Smith Estate & Trust, Estate Planning, Executors and Trustees, General Interest, In the News, Litigation, Public Policy Tags: , , , , 0 Comments

We have previously blogged on Fraudulent Conveyance.  This cause of action can, on occasion, be met with a defence that the conveyance of property was in furtherance of an estate plan and, therefore, without fraudulent intent.  As with most cases, the specific facts of the case will determine whether the defence can succeed.

In Bank of Montreal v. Real Marleau, the Saskatchewan Court of Queen’s Bench was prepared to entertain the notion that the defendant’s assertion might actually be true, but nonetheless, determined that the conveyance ought to be aside.

The estate planning defence was considered and again rejected in Re Whetstone, 1984 CarswellOnt 157.  In this case, the estate planning defence relied on evidence from the family’s solicitor.  The court noted, at paragraph 28,

“In the circumstances, it is not material that the family’s solicitor recommended the conveyance based on general principles and not on actual knowledge of the company’s financial position; the intent we are concerned with is not that of the family’s solicitor, but of [the defendant].”

Lastly, in an unreported decision of the Ontario Superior Court of Justice, RBC v. Nicolau, the defence was considered but not accepted:

“In this case, Mr. Nicolau testified that the transfer was for estate planning purposes.  He submits that there was therefore no fraudulent intent.

RBC referred the Court to jurisprudence in which the estate planning defence was raised.  I agree with the submissions of RBC that this defence must fail.  While the transfer may have also satisfied Mr. Nicolau’s estate planning goals, this explanation is not, in my view, sufficient to displace the inference of fraudulent intent given the timing of this estate planning and the presence of the badges of fraud.  Accordingly, I find that the April 16, 2012 conveyance of 1 Lister Drive to Gabriel Nicolau was fraudulent, and the provisions of the Act are therefore applicable.”

Thanks for reading,

David Morgan Smith

08 Aug

Hull on Estates #342 – Estate Freeze Considered as Fraudulent Conveyance

Hull & Hull LLP Hull on Estates, Podcasts, Show Notes, Show Notes Tags: , , , , , , , 0 Comments

Listen to: Hull on Estates Episode #342 – Estate Freeze Considered as Fraudulent Conveyance

Today on Hull on Estates, David Smith and Holly LeValliant discuss whether an estate freeze can be considered a fraudulent conveyance.  David and Holly discuss the Ontario Superior Court of Justice case Reisman v. Reisman 2012 ONSC 3148 and compare it to the Ontario Court of Appeal’s decision in Stone v. Stone 2001 CanLII 24110 (ON CA)

If you have any questions, please e-mail us at hull.lawyers@gmail.com.

Click here for more information on David Smith.

Click here for more information on Holly LeValliant.

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