In Ontario Securities Commission v Camerlengo Holdings Inc., 2023 ONCA 93, the OSC brought a claim under s 2 of the Fraudulent Conveyances Act (Ontario) (the “FCA”) against a husband and wife. The husband and wife convinced a judge to strike the claim. The husband was a (directly or indirectly) shareholder of a corporate debtor. The husband and wife had purchased a home in 1988 with title in joint tenancy. In 1996, four months after incorporating the corporate debtor, the husband transferred his interest in the home to his wife. The evidence showed that the husband made the transfer because of concerns about his exposure to the creditors of his expanding contracting business. The business began encountering financial difficulties by 2011.
The Court of Appeal overturned the motions judge and held that the FCA could apply to the husband’s conveyance of the home to his wife even though it appeared it occurred well before his business ran into financial difficulties.
[11] … An intent to defraud creditors generally can be made manifest by taking steps to judgment proof oneself in anticipation of starting a new business venture. To plead a fraudulent conveyance on this basis, it is not necessary that a claimant be able to identify a particular, ascertainable creditor that the debtor sought to defeat at the time of the conveyance. It is enough, on the case law, to plead facts that support the allegation that at the time of the conveyance the settlor perceived a risk of claims from a general class of future creditors and conveyed the property with the intention of defeating such creditors should they arise. The types of facts that can support an inference of such an intention to convey property away from creditors – present or future – are often described as “badges of fraud”.
The Court quoted with approval an article on the “badges of fraud”: Paul M. Perell, “A Pragmatic Approach to Fraudulent Conveyances”, (2005) 30:3 Advoc. Q. 373. The Court found that the following facts, which the OSC had pleaded in support of its claim, might support the claim under the FCA:
i) Fred (the husband) conveyed the property to his wife;
ii) No consideration was paid for the transfer;
iii) The transfer was made after 16 years [sic] of joint ownership;
iv) The transfer was made 4.5 months after Fred and his business partner incorporated Gridd [one of the husband’s opcos];
v) The transfer was made at the same time and using the same lawyer that Fred’s business partner used to transfer his family home to his wife;
vi) The transfer was made at a time when Fred and his wife were concerned about exposure to personal liability from Fred’s “rapidly expanding electrical contracting business that started bidding on, and working on, million dollar high-risk projects”.
vii) Fred continued to treat the property as his own. He not only continued to live there, but caused his wife to mortgage the property multiple times for the benefit of his corporations. He paid all costs and expenses related to the property and gave personal guarantees for the mortgage obligations.
