Payments void as transfers at undervalue when no commercial basis for transactions

Ontario civil | Bankruptcy and Insolvency | Avoidance of transactions prior to bankruptcy | Fraudulent preferences

N Inc. operated as re-seller of data communications equipment. Respondent S Inc. was incorporated to help out N Inc.. Receiver was appointed in April 2015 and N Inc. was assigned into bankruptcy in July 2015. Trustee noticed that N Inc. received two separate payments from S Inc. in 2013 and 2014 totalling $497,000. Following payments, N Inc. made number of payments to S Inc. in period immediately preceding receivership totaling over $1,055,581. There was no documentation to explain reason for payments. Trustee claimed transactions were transfers at undervalue to extent of excess monies received by S Inc. over and above monies paid by S Inc. to N Inc.. Trustee brought motion for declaration that transactions between N Inc. and S Inc. were transfers at undervalue and order that S Inc. pay estate of N Inc. amount of $334,841. Motion granted. There was no generally accepted commercial basis for transactions. N Inc. and S Inc. were not acting at arm’s length. By entering into transactions, N Inc. intended to defraud or delay major creditor by falsifying receivables and payables in order to mislead creditor, who was monitoring N Inc.’s financial position closely. Payments by N Inc. to S Inc. were void as transfers at undervalue. S Inc. ordered to pay estate amount of $334,841.

National Telecommunications v. Stalt (2018), 2018 CarswellOnt 5360, 2018 ONSC 1101, L.A. Pattillo J. (Ont. S.C.J.).

Free newsletter

Our newsletter is FREE and keeps you up to date on all the developments in the Ontario legal community. Please enter your email address below to subscribe.

Recent articles & video

Seven new judges join Ontario Court of Justice

Right of first refusal not 'eviscerated' by discouraging rights holder: Ontario Court of Appeal

Assess witness by age at testimony on events that occurred during childhood: Ontario Court of Appeal

Ontario government seeks to cut red tape with modernized legislation

Nominate now for Canada's top legal professionals!

LSO and federation push Metrolinx to find alternative to new subway station on Osgoode Hall property

Most Read Articles

Lawyers may ask courts to invalidate their retainer agreements: Ontario Court of Appeal

Buyer who failed to complete property purchase not entitled to return of deposit: Ontario court

LSO and federation push Metrolinx to find alternative to new subway station on Osgoode Hall property

Ontario Court of Appeal upholds summary dismissal of malicious prosecution lawsuit