Ontario Civil

Bankruptcy and Insolvency

Avoidance of transactions prior to bankruptcy

Fraudulent and illegal transactions

Debtor incorporated for purpose of carrying out “inappropriate conduct”

D and C ran various companies (D/C companies), including debtor company which was incorporated on May 28, 2013. Respondent R had loaned money to various D/C companies. On June 6, 2013, debtor entered into agreement that factoring company L Co. would purchase certain receivables owing to debtor on account of work done and services supplied by debtor. L Co. advanced $1,107,017.87 to debtor’s account between June 10 and 28, 2013. Between June 3 and July 12, 2013, debtor made five payments totalling $411,000 into joint account held by R and his wife, respondent A, as partial re-payment of loans R had made to other D/C companies. Debtor was placed in bankruptcy in December 2013. Trustee brought application for order under s. 96 of Bankruptcy and Insolvency Act to have R and A pay $411,000 to estate on basis monies were received pursuant to transfer at undervalue transactions. Application granted in part. Requirements in s. 96(1)(a) were met in respect of R. Receipt by R of payments from debtor was sufficient to constitute “dealing” within s. 96. R was dealing at arm’s length. Payments occurred in year before debtor’s bankruptcy, while debtor was insolvent. Given timing of events, debtor was incorporated for purpose of defrauding L Co., which it subsequently did. Debtor never had any employees, conducted any business, or had any real assets. Debtor’s activities after incorporation confirmed evidence debtor was incorporated for purpose of carrying out “inappropriate conduct”. There was no evidence D/C companies were operating as single enterprise or joint venture. As L Co. did not become creditor until it advanced monies to debtor on June 10th, transfers after that date, totalling $389,000, were transfers at undervalue and were to be repaid by R to debtor’s estate. A was not party or privy to transfers and was not liable under s. 96.

WF Canada, Re (2017), 2017 CarswellOnt 8208, 2017 ONSC 3074, L.A. Pattillo J. (Ont. S.C.J.).

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