Legal Blog

Fraudulent Preference

Golden Oaks Enterprises Inc. v. Scott 2022 Ont CA

Trustee in bankruptcy brought an action against people who had received commissions and interest exceeding the criminal rate from a one-person corporation conducting a Ponzi scheme. The Court agreed that the people receiving the commissions had to return these funds because the corporation was insolvent from the start and was using fresh money to pay the commissions. S. 95(1)(b) of the BIA was invoked to justify the return as fraudulent preferences made to non-arm’s length people. For limitations purposes, the Court refused to attribute the individual fraudster’s knowledge to the corporation even though the corporation benefitted from the fraudster’s acts. The Court held that it would be improper to allow people who received criminal rates of interest to shield behind the corporate attribution rule at the expense of others creditors.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.