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Fraud and Unjust Preferences

. Montor Business Corporation v. Goldfinger [I]

The case of Montor Business Corporation v. Goldfinger [I] (Ont CA, 2016) is useful for it's extended consideration of the concept of improvident disposition of assets (relevant to unjust preference). While the court decided the issue on the application of this concept in a bankruptcy context, it assesses the various 'badges of fraud' factors that inform the same issue in the context of the Fraudulent Conveyances Act, the Assignment and Preferences Act and elsewhere:
(iv) Analysis

(1) Transfers at Undervalue

[51] Section 2 of the BIA defines a “transfer at undervalue” as follows:
[A] disposition of property or provision of services for which no consideration is received by the debtor or for which the consideration received by the debtor is conspicuously less than the fair market value of the consideration given by the debtor.
[52] In the absence of evidence to the contrary, Farber’s opinion on both the fair market value of the property or services and the value of the actual consideration given or received by the debtor are to be accepted by the court: see s. 96(2) of the BIA.

[53] Weighing the adequacy of consideration is not an exercise in precision but one of judgment. Nominal or grossly inadequate consideration is insufficient and may be an indication or badge of fraud: see Feher v. Healey, [2006] O.J. No. 3450 (Sup. Ct.), at para. 45, aff’d 2008 ONCA 191 (CanLII).

[54] Forbearance from suit and a settlement agreement may constitute adequate consideration: see Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726, at p. 743; Stott v. Merit Investment Corp. (1988), 1988 CanLII 192 (ON CA), 63 O.R. (2d) 545 (C.A.), at pp. 558-60, leave to appeal dismissed, [1988] S.C.C.A. No. 185.

....

(2) Acting at Arm’s Length

[64] Given my conclusion on the transfer at undervalue issue, it is not strictly necessary to address Farber’s other arguments about s. 96 of the BIA. I will do so because my conclusions on the balance of the s. 96 factors inform my conclusions on Farber’s other grounds of appeal attacking the validity of the Payments.

[65] On the issue of whether the parties were at arm’s length, Farber does not challenge the trial judge’s description of the applicable test or his finding that Goldfinger and Annopol were unrelated. Rather, it challenges his application of the test and his conclusion that Goldfinger and Annopol were acting at arm’s length.

[66] Section 4(4) of the BIA states: “It is a question of fact whether persons not related to one another were at a particular time dealing with each other at arm’s length.” As a result, absent a palpable and overriding error, the trial judge’s finding on this issue is entitled to deference.

[67] The trial judge considered the dicta in Abou-Rached (Re), 2002 BCSC 1022 (CanLII), 35 C.B.R. (4th) 165, at para. 46:
[A] transaction at arm’s length could be considered to be a transaction between persons between whom there are no bonds of dependence, control or influence, in the sense that neither of the two co-contracting parties has available any moral or psychological leverage sufficient to diminish or possibly influence the free decision-making of the other. Inversely, the transaction is not at arm’s length where one of the co-contracting parties is in a situation where he may exercise a control, influence or moral pressure on the free will of the other. Where one of the co-contracting parties is, by reasons of his influence or superiority, in a position to pervert the ordinary rule of supply and demand and force the other to transact for a consideration which is substantially different than adequate, normal or fair market value, the transaction in question is not at arm’s length.
[68] He also considered Piikani Energy Corporation (Trustee of) v. 607385 Alberta Ltd., 2013 ABCA 293 (CanLII), 556 A.R. 200, which identified factors that provide guidance on non-arm’s length analysis in the context of Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) jurisprudence. These factors, enumerated at para. 29 of Piikani, are: was there a common mind which directed the bargaining for both parties to a transaction; were the parties to the transaction acting in concert without separate interests; and was there de facto control?

....

(3) Intention to Defraud, Defeat or Delay a Creditor

[72] The burden was on Farber to establish the requisite intent under s. 96 of the BIA. An inference of intent may arise from the existence of one or more badges of fraud. However, the presence of such indicia does not mandate a finding of intent. Whether the intent exists is a question of fact to be determined from all of the circumstances as they existed at the time of the conveyance: see Re Fancy (1984), 1984 CanLII 2031 (ON SC), 46 O.R. (2d) 153 (H. Ct. J.), at p. 159.

[73] Case law has identified the following, non-exhaustive list of “badges of fraud” (see DBDC Spadina v. Walton, 2014 ONSC 3052 (CanLII), at para. 67; Indcondo Building Corp. v. Sloan, 2014 ONSC 4018 (CanLII), 121 O.R. (3d) 160, aff’d 2015 ONCA 752 (CanLII), 31 C.B.R. (6th) 110, at para. 52):
• the transferor has few remaining assets after the transfer;

• the transfer was made to a non-arm’s length person;

• the transferor was facing actual or potential liabilities, was insolvent, or about to enter a risky undertaking;

• the consideration for the transaction was grossly inadequate;

• the transferor remained in possession of the property for his own use after the transfer;

• the deed of transfer contained a self-serving and unusual provision;

• the transfer was secret;

• the transfer was effected with unusual haste; or

• the transaction was made in the face of an outstanding judgment against the debtor.



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