Securities regulator’s fraudulent conveyance claims should not be struck: Ontario CA

Husband transferred home to wife for no pay and kept living there, statement of claim says

Securities regulator’s fraudulent conveyance claims should not be struck: Ontario CA

The Ontario Securities Commission (OSC) sufficiently alleged facts that could support that a married couple intended to defraud creditors, including those arising from the husband’s electrical contracting business, the Ontario Court of Appeal said in a recent case.

Fred Camerlengo, the individual respondent, was sole director, officer, and shareholder of the corporate respondent, Camerlengo Holdings Inc. (Holdco). In 1988, he and Mirella Camerlengo – his wife and also an individual respondent – bought their family home.

The OSC alleged the following facts in its statement of claim. Fred and his business partner had an electrical contracting business with various corporations. In February 1996, they incorporated Gridd Electrical Services Inc. They conveyed their interests in their family homes to their spouses for no consideration on the same day four months later. They used the same lawyer.

According to the OSC, Fred made the transfer with the intent and purpose of defeating his existing and future creditors of their just and lawful actions, suits, debts, accounts, and damages. He allegedly continued to live in the family home, while his wife intermittently mortgaged it to fund his business activities.

Fred faced financial difficulties and arranged for a loan from a business associate, who advanced $200,000 to Holdco via Bluestream International Investments Inc. The business associate defrauded many clients through a fraudulent investment scheme. The Camerlengos lost over $600,000.

In 2018, the OSC issued a disgorgement order against Bluestream and its affiliated entities to recover funds on behalf of the defrauded investors. It obtained a garnishment order against Holdco to recover the $200,000 debt owed to Bluestream.

The OSC filed an action against Holdco and the Camerlengos. It sought a constructive and resulting trust and a remedy for oppression. It asked the court to set aside the transfer of the family home and various payments that Holdco made to the individual respondents from 2010 to 2016 as fraudulent conveyances.

The individual respondents moved to strike the OSC’s statement of claim under r. 21.01(1) of the Rules of Civil Procedure, RRO 1990, Reg 194. They argued that the facts that the OSC pleaded were insufficient to establish standing to file a claim under s. 2 of Ontario’s Fraudulent Conveyance Act, 1990.

Justice Heather McGee of the Ontario Superior Court of Justice dismissed the motion, except relating to the fraudulent conveyance claims.

Claims shouldn’t be struck

In Ontario Securities Commission v. Camerlengo Holdings Inc., 2023 ONCA 93, the Ontario Court of Appeal allowed the appeal, vacated the motion judge’s order, and dismissed the motion to strike in its entirety.

The judge incorrectly interpreted and applied s. 2 of the Act and should not have struck the fraudulent conveyance claims, the appellate court ruled.

The OSC had standing to bring the claims, the appellate court held. The OSC pleaded facts which, if established on the evidence, would together be sufficient to support the allegation that the conveyance was made with the intention of fraudulently defeating future creditors.

The OSC alleged that Fred transferred the property to his wife:

  • after 16 years of joint ownership
  • four and half months after Gridd’s incorporation
  • at a time when he and his wife were concerned about his potential exposure to personal liability due to his expanding business that had begun bidding on and working on million-dollar, high-risk projects
  • at the same time that Fred’s business partner transferred his family home to his wife
  • using the same lawyer that the business partner used in the transfer of his family home

The OSC also claimed that the wife paid no consideration for the transfer. Fred allegedly continued to treat the family home as his own, continued to live there, made his wife mortgage the property multiple times for his corporations’ benefit, paid all property-related costs and expenses, and gave personal guarantees for the mortgage obligations.

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