Legal Blog: Collections

Cyber Fraud

Mississippi Mills (Town of) v. 16442676 Canada Inc., 2026 ONSC 2052

A municipality fell victim to cyber fraud when scammers impersonated a project manager and redirected construction funds into a fraudulent bank account. After paying the contractor a second time, the municipality commenced an action and successfully secured and froze a majority of the diverted money. The municipality then moved for a default judgment against the named defendants. The court granted the motion, awarding the plaintiff the full diverted amount, plus $100,000 in punitive damages and full indemnity costs. The court reasoned that punitive damages were vital to deter cyber-fraud and express strong disapproval of the reprehensible misconduct, while full indemnity costs protected local taxpayers from bearing the financial burden of the fraud.

Binding Contract

 An oral contract ain’t worth the paper it’s written on. This tongue-in-cheek comment, although incorrect, is based on some commonsense principles. A party to an oral contract can always attempt to get out of that contract by disavowing its existence. Or contracting parties may have different views of the various terms of the contract. Accordingly, it is always good practice to have the oral contract set down in writing and signed. However, with some exceptions (such as a guarantee, which must be in writing to be enforceable) an oral contract is still a contract, and it is still enforceable if the party attempting to enforce it can prove its terms. This was the situation in Bank of Montreal v. Ieradi, a 2025 decision of the Ontario Superior Court of Justice.

Norwich Order

Nivora Group LLC v. Ping 2026 Ont SCJ

Plaintiffs, alleging cryptocurrency fraud, brought a motion for a Norwich order to trace and preserve allegedly misappropriated assets. The judge dismissed the motion finding that, although the plaintiffs established a bona fide claim, the intrusive remedy they sought was not necessary. They had already sued the defendants and could obtain the requested information from them by way of discovery; the third-party cryptocurrency exchanges were not the only practical source of information; and the interests of justice did not favour the order because the plaintiffs’ delay in bringing the motion contradicted their claim of dissipation risk. The judge reasoned that a Norwich order is a powerful tool to be used sparingly and cannot serve as a substitute to bypass regular discovery.

Sword

Live by the sword; die by the sword. Bad things can happen when a plaintiff decides to commence an action while still an undischarged bankrupt and, worse yet, does not notify his trustee in bankruptcy of his claim. The plaintiff in Little v. Bramcan Investments Limited, a 2025 decision of the Ontario Court of Appeal, learned this the hard way.

Complaint

Tenant started an action against his former landlord and two of the landlord’s officers and directors. In the action, tenant claimed the value of personal property that landlord converted (by disposition). All of the assets arose out of a fitness and strength building business that tenant ran. The statement of claim alleged that the value of the assets was approximately $250,000, but tenant later claimed that the assets were worth $430,000. Presumably, landlord had taken possession of the leased premises upon tenant’s default and, deciding the assets had no real sale value that would have exceeded the costs of disposition, pitched them.

Due Diligence

The Fraudulent Conveyances Act allows “creditors or others” to attack improper mortgages. We have occasionally attacked mortgages as being fraudulent under the Act, usually when we determine that the mortgages are really a sham. Can mortgages be attacked under the Act when the mortgages are real and secure money actually advanced under the mortgages? As usual, the answer depends on the circumstances. One set of these circumstances formed the factual basis for the decision in Chen v. Huang, a 2025 decision of the Ontario Court of Appeal.

Overview

The applicants were majority shareholders of a corporation that owned a multi‑unit residential property. The minority shareholder was the corporation’s sole director and officer. Acting alone, the officer executed a $6M second mortgage (1 year at 13% per year) and a $1.7M third mortgage (6 months at 15% per year) against the property. The mortgagees were arm’s‑length private lenders.

Fraudulent Conveyance/Preference

Crowe Soberman Inc. v Noir Property Management Ltd. 2025 Ont SCJ

Mortgagee claimed secured status through a mortgage granted by an insolvent mortgagor for no seeming consideration. The judge held that the mortgage was both a fraudulent conveyance and a fraudulent preference. It was not made in good faith, and the mortgagee knew of the mortgagor’s financial difficulties at the time.

BIA Attacks

We often discuss attacking a transfer under the Fraudulent Conveyances Act and the Assignment and Preferences Act. These are provincial statutes (in this case, Ontario). However, the Bankruptcy and Insolvency Act, a Canada statute, also has effective, and sometimes more effective, provisions to set aside improper transactions. These are set out in s. 95 and s. 96 of the BIA. Both sections were discussed in Ernst & Young Inc. v. Anwar, a 2025 decision of the Saskatchewan Kings Bench.

Purposes

Section 95 of the BIA governs fraudulent preferences (i.e.  transactions an insolvent person makes before bankruptcy that unfairly favour one creditor over others).

Section 96 governs undervalued transfers that strip assets from a bankrupt before bankruptcy. It is interpreted expansively to protect the integrity of the bankruptcy process.

These sections allow a trustee in bankruptcy to distribute assets among all creditors fairly by disallowing preferential payments to some creditors and setting aside improper transfers.

CPL

N. and G. Lazos Building Contractors O.E. v. Kapsalis‑Fragaki 2025 Ont SCJ (AJ)

Action to enforce a Greek judgment. During the Greece proceedings, the debtor entered into an alter ego trust in which title to Ontario land was transferred to the trust. The creditor alleged that this transfer was a fraudulent conveyance; the debtor claimed that the trust was proper and done before the Greek judgment. The associate judge held that there were issues as to the timing of the trust and allowed the motion for a CPL.

Trust & Fraud

Debtors often try to stymie their creditors from seizing their assets in payment of their debts. The most prevalent means to do this is to transfer real property to a non-arm’s-length person. In that way, the debtor can enjoy the use of the property and keep it out of the hands of the creditors. Creditors can attack this transfer, known as a fraudulent conveyance, by way of the Fraudulent Conveyances Act (Ont) and the undervalue provisions (s. 96) of the Bankruptcy and Insolvency Act (BIA). Once a creditor proves that a debtor transferred the property for no or inadequate consideration, the transferee has very little ammunition left to fend off the attack. One defence is a claim that the debtor’s transfer was only made to return legal title to the transferee, which the debtor held by way of a trust, whether express, resulting, or constructive. That was the defence in E. Sands & Associates v. Gidda a 2025 Ontario Superior Court of Justice decision.

CPL (2)

A certificate of pending litigation (CPL) is a notice registered against title to property informing the world that title to this property is in issue. Any purchaser or mortgagee who then deals with the property does so at its peril. An action to set aside a mortgage or a transfer of land under the Fraudulent Conveyances Act (Act) is often joined with a motion for the issuance of a certificate of pending litigation. After all, what good will it do to bring an action to set aside a transfer if, just before trial, the fraudsters simply re-transfer the property to another person complicit in the fraud or, worse yet, sell or mortgage the property to arm’s length third parties.

A CPL may be obtained on motion without notice (Rule 42.01 of the Rules of Civil Procedure) and, if there is an apparent claim for an interest in land, it is not overly difficult to obtain a CPL. The real fight ensues when the property owner is notified, as required by the Rules, that the land has now been bound by the CPL. Such was the case in Nedaneg Financial Corporation v. Talebzadeh, a 2025 decision of the Ontario Superior Court of Justice. In Nedaneg, however, the plaintiff brought its motion on notice to the defendants.