Legal Blog: Collections
Tiziana‘s article was recently featured in Canadian Lawyer Magazine. Click here to read: Catch me if you can: The art of pursuing fraudulent debtors
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We often write about attacking a transaction on grounds that it is a fraudulent conveyance. What does that mean; what is the remedy; and is that remedy relevant to anything outside of the action? These questions were answered in part in Guthrie v. Abakhan & Associates Inc., a 2017 decision of the British Columbia Court of Appeal. Although the language of the BC Fraudulent Conveyance Act has been updated as compared to the Ontario Fraudulent Conveyances Act, and the 1571 English Statute of Elizabeth on which both were based, the substance of the Ontario and BC statutes is still essentially the same.
Fraudulent conveyance statutes have but one purpose: to stop a debtor from successfully transferring away assets for no or inadequate consideration (i.e. payment or other value). The simplest example is a husband transferring assets to his wife to avoid having to pay his debts. With this simple transfer the family unit keeps and enjoys the asset and the husband’s creditors are left howling in frustration.
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Trade Capital Finance Corp. v. Cook 2017 Ont SCJ
One unsecured creditor obtained a Mareva injunction, which included an order that the seized assets could not be attacked without further order of the court. A non-party, who was a judgment creditor of the defendant and had filed a writ of seizure and sale, moved to have the order vacated against it so that it could seize and sell specific assets to satisfy its judgment. The court granted the order, holding that a Mareva injunction was an injunction in general and not a proprietary injunction against specific property claimed to be owned by the unsecured creditor. Accordingly, the plaintiff, an unsecured creditor, could not hold a preferred position over the judgment creditor.Continue Reading >
A mortgagee wants to take possession of mortgaged residential premises because the mortgagor is in arrears of the payments due under a mortgage. Normally, there would be no real problem. However, if the mortgagor has leased the premises, then problems arise and the mortgagee has some additional hurdles to overcome. Toronto-Dominion Bank v. Hosein, a 2016 decision of the Ontario Court of Appeal, discusses those problems and eliminates one of them.
In the good old days, a mortgagee had priority over a subsequent tenant and, when a mortgagee had the ability to take possession of the premises from the mortgagor, ultimately the tenant had to leave. In order to rectify that imbalance of power for residential premises, the Ontario legislature amended the Mortgages Act (“MA”) in 1991 to provide security of possession to a mortgagor’s subsequent tenants. At the same time, the legislature, realising that a financially strapped mortgagor might not necessarily be honourable, allowed a mortgagee to apply to vary or set aside a tenancy agreement if it (a) had been entered into to discourage the mortgagee from taking possession of the premises or (b) adversely affected the value of the mortgagee’s interest in the premises. In other words, sham tenants are not protected.Continue Reading >
The techniques in which debtors attempt to hide their assets or ensure that their creditors cannot seize them are varied and plentiful. The job of creditors’ counsel or the creditors themselves is to investigate, determine what happened to the assets, and act to recover them. In Bearsfield Developments Inc. v. McNabb, a 2016 decision of the Ontario Superior Court of Justice, the debtor had a really good plan. Just before her employer discovering her embezzlement, she transferred $206,000 into a creditor proof segregated mutual fund (which we assume had an insurance component). She was therefore able to tell her defrauded employer, who ultimately obtained a judgment against her for almost $1 million, that she was very sorry, but she had no assets to repay the employer the money she stole from it. Was she able to get away with this?
The Fraudulent Conveyances Act applies to every conveyance of real property or personal property made with the intent to defeat creditors of their lawful debts. It allows a creditor to set aside the conveyance. The employer brought an action to do just that, arguing that a transfer of seizable assets into a form of property that could not be seized was, in itself, a fraudulent conveyance.Continue Reading >
Gilbert’s LLP v. David Dixon Inc. 2017 Ont Div Ct
Law firm sued in Superior Court to collect account. Application judge dismissed the application holding that a lawyer had no right to commence an action under section 23 of the Solicitors Act unless there was a bona fide dispute as to the terms or effect of the written retainer agreement. The Divisional Court noted that the Solicitors Act was outdated and convoluted and that the Ministry of the Attorney General had under resourced the assessment process. The Divisional Court held that the law firm was entitled to commence an action to enforce a simple or usual written fee agreement, particularly one in which there is no dispute as to the terms of the retainer agreement or the outstanding account. The Court noted that this right was always subject to the client’s right to apply for an assessment of the account under section 3 of the Act.Continue Reading >
An execution creditor (i.e. a judgment creditor who has filed a writ of seizure and sale with a sheriff) has a right to request the sheriff to sell the judgment debtor’s equity in property and apply the proceeds of sale to the debtor’s executions. However, if a mortgage encumbers the property, the sheriff insists upon receipt of a mortgage statement from the mortgagee. The sheriff needs to review the statement to assess the equity in the property and ensure that it exceeds the minimum $10,000 threshold set pursuant to the Execution Act. Must the mortgagee give that statement? If the mortgagee does provide the statement, is it breaching the provisions of the Personal Information Protection and Electronic Documents Act (PIPEDA)? These questions had previously been answered by the Ontario Court of Appeal, but the Supreme Court of Canada, in its 2016 decision in Royal Bank of Canada v. Trang, has given new answers.
As a rule, judgment debtors do not want to assist execution creditors to sell the debtors’ property out from under them. Go figure. Accordingly, debtors will not give their mortgagees explicit consent to provide a mortgage statement to their execution creditors. No mortgage statement, no sheriff’s sale.
Of course, an execution creditor can always attempt to obtain the statement from a debtor by way of a judgment debtor examination. This presumes that judgment debtors are always cooperative and never lie. Unfortunately, a debtor can stall an execution creditor for months, even years, and ensure that the creditor incurs significant costs before finally obtaining what it needs. These costs will often exceed the judgment debt or the equity in the property or both.
A creditor’s right to initiate a sheriff’s sale is no right at all if the sale cannot be carried out efficiently and economically.Continue Reading >
Unlike an Ontario judgment, a foreign judgment is dealt with as if it were a contract and, accordingly, the basic 2 year limitation period applies. The earliest that the limitation period starts to run is the date on which a judgment is registered and the appeal period ends or, if there is an appeal, on the date that the appeal decision is rendered. The start of the limitation period is also affected by discoverability. It would be extended until the time when a creditor knew or ought to have known that the judgment debtor had exigible assets in Ontario.Continue Reading >