Legal Blog
Jeopardy
A creditor has a right to examine an individual debtor or the representative of a corporate debtor as to the debtor’s assets and transfers of property. This is referred to as a judgment debtor examination. In the normal course, this examination invades the debtor’s rights of silence, but such is to be expected by a debtor who fails to pay its debts. What happens when the creditor commences an action against a corporate debtor’s representative, claiming that there was a fraudulent conveyance or other oppressive action and, in addition to its normal rights of discovery in that action, also attempts to examine the corporate representative by way of a judgment debtor examination. This was the issue in Kristina Zakhary Professional Corp v. Age-less Dermal Therapy Inc., a 2015 decision of the Ontario Superior Court of Justice.
Examinations
A director was to be examined in a judgment debtor examination as a representative of the corporate debtor. Before the examination, the creditor commenced another action against the corporation and the director personally, alleging a fraudulent conveyance. The director refused to attend at the judgment debtor examination and the creditor moved for an order requiring her to do so.
The Master refused to grant the order, stating that it would be unfair to allow the director to be examined twice. The creditor appealed to a judge of the Superior Court of Justice, who allowed the appeal. He indicated that a creditor had a right to conduct a judgment debtor examination; further, as long as the questions were proper for a judgment debtor examination, it was irrelevant if the questions also related to issues or property being dealt with in the new action.
This offers a distinct advantage to the plaintiff creditor. Even if the director is being as truthful as possible, there are often small, and sometimes large, differences in a story being told at different times and a creditor can exploit these differences in a cross-examination at trial.
Image courtesy of mconnors.
Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices. |