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ONTARIO’S FRAUDULENT CONVEYANCES ACT: EXPLORING ESSENTIAL REAL ESTATE LIMITATION PERIODS

fraudulent conveyances act
fraudulent conveyances act

Fraudulent Conveyances Act: Introduction

In this Brandon’s Blog, we discuss the Ontario Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 and its elaborate implications within the substantial world of real property transactions. We will navigate the labyrinthine provisions of the Act, and enhance your understanding using a real-world example. We will also clarify the connection between the Fraudulent Conveyances Act, fraudulent conveyances and Ontario limitation periods in the realm of real estate transactions.

We will also check out the interaction between the Fraudulent Conveyances Act and limitation periods in realty transactions. Limitation periods play a considerable duty in determining when lawsuits can be brought forward, and comprehending just how they associate with fraudulent conveyances is important in navigating the intricacies of the property landscape. We will check out a recent decision of the Court of Appeal for Ontario released on August 4, 2023, which clears up this whole issue.

How the Fraudulent Conveyances Act works

The Ontario Fraudulent Conveyances Act is a stunning piece of Ontario provincial law that stands as a guardian of creditors’ legal rights versus the treacherous schemes of debtors. With unfaltering willpower, this Act has been made to ward off any and all efforts by debtors to slither out of their financial obligations by slyly moving their properties to others.

In its noble search for justice, the Fraudulent Conveyances Act makes sure that creditors are protected from the conniving strategies of debtors who look to avert their obligations. This legislation supplies a strong structure for creditors to attack any kind of potentially uncertain transactions and obtain the return of any type of funds or properties that may have been cunningly relocated.

Within the realm of Ontario’s legal landscape, the Fraudulent Conveyances Act tackles the extensive duty of guarding the position of creditors versus the shrewd maneuvers entailing the surreptitious change of ownership of property, either personal or real, by individuals or corporations trying to move their assets away from the responsibility of their debt obligations through webs of deceit.

Operating as a linchpin of justice, this Fraudulent Conveyances Act plays a crucial duty in the upkeep of equity and also moral integrity within the realm of property dealings. It possesses the power to nullify those transactions that arise from the indelible mark of deceit, thereby fortifying the bedrock concepts of fairness and equity.

fraudulent conveyances act
fraudulent conveyances act

Definition of fraudulent conveyance

Within the province of Ontario, the concept of a fraudulent conveyance takes shape as the orchestration of a maneuver wherein one or more assets, akin to pawns on a strategic board, are relocated, driven by the very purpose of ensconcing these assets beyond the reach of creditors. This type of transfer garners the label of fraudulent, a designation reflecting a means to veil and shroud property, rendering it escaping the reach of creditors.

This legislative framework, known as the Ontario Fraudulent Conveyances Act, unveils a list of specific benchmarks, all for the recognition of a transfer swathed in the cloak of deception and thus null and void. A transfer imbued with an intent to stall and thwart creditors’ aspirations or, alternatively, the transfer is one with a price tag significantly below fair market valuation. Upon a court determining that a transfer is a fraudulent conveyance, the property is undone, returning back to the debtor owner’s estate for the benefit of its creditors.

Who is covered by the Fraudulent Conveyances Act and what actions are prohibited under the Act?

The Fraudulent Conveyances Act applies to the affairs of both individuals and corporate entities. This legislation stands as a guardian, shielding the vested interests of creditors. Its purpose is to undo the webs of illicit property transfers aimed at moving property out of the reach of creditors.

Any transaction found by the court to violate the Act will be reversed. The heart of this Act aims to maintain integrity in transactions and remedy those designed to be deceitful.

fraudulent conveyances act
fraudulent conveyances act

Importance of understanding limitation periods in business transactions

Understanding limitation periods within the world of transactions is very important in comprehending everybody’s rights. An astute grasp of limitation periods is extremely vital for any person pondering initiating a lawsuit. This is particularly true in the world of attempting to turn around deals as being in breach of the Fraudulent Conveyances Act.

As you will certainly see below, this is the essence of the recent decision of the Court of Appeal for Ontario entailing a real estate deal that a bank was attempting to obtain reversed as contravening the Fraudulent Conveyances Act.

Time Period for fraudulent conveyance actions: Limitations Act vs Real Property Limitations Act

The problem needing a decision from the Court of Appeal for Ontario when it comes to Bank of Montreal v. Iskenderov, 2023 ONCA 528 (CanLII) discussed below, is, when it comes to a potentially fraudulent conveyance involving real estate, what is the limitation period?

Under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, the restriction duration, or time period to bring a fraudulent conveyance action in Ontario is 2 years from the date of the transfer or disposition of property. However, the Real Property Limitations Act, R.S.O. 1990, c. L.15 (RPLA) states:

“4. No person shall make an entry or distress, or bring an action to recover any land or rent, but within ten years next after the time at which the right to make such entry or distress, or to bring such action, first accrued to some person through whom the person making or bringing it claims, or if the right did not accrue to any person through whom that person claims, then within ten years next after the time at which the right to make such entry or distress, or to bring such action, first accrued to the person making or bringing it.”

When it comes to real estate, if a creditor wishes to challenge a fraudulent transfer under the Fraudulent Conveyances Act, do they have a two-year window from the date of the transfer to initiate legal proceedings or a ten-year window? That is the question the Court of Appeal for Ontario answered in Bank of Montreal v. Iskenderov.

fraudulent conveyances act
fraudulent conveyances act

The Bank of Montreal was embroiled in a legal conflict before the Court of Appeal for Ontario. The plaintiff, or respondent, is the Bank of Montreal, while the defendants, or applicants in the appeal, are Roufat Iskenderov and Elena Lazareva. At issue is the transfer of property from Mr. Iskenderov to his spouse, which the bank claimed was a fraudulent conveyance.

Initially, the motion court found in favour of the Bank of Montreal, specifying the ten-year duration applies in their litigation under the Fraudulent Conveyances Act and allowing the case to proceed. Nonetheless, the applicants appealed, suggesting that a two-year period should apply.

To totally resolve the legal concern bordering which statute and limitation period applies to an action to reserve a fraudulent conveyance of real property, the appeal court assembled a five-judge panel.

In 2008, Mr. Iskenderov transferred his share of a jointly owned home to Ms. Lazareva as part of a separation agreement. In 2008, Mr. Iskenderov fraudulently defaulted on a $400,000 line of credit with the Bank of Montreal. After legal proceedings, Mr. Iskenderov filed for bankruptcy in 2009 and was discharged in 2012.

The Bank began its legal action to challenge the home transfer as fraudulent in 2013. The motion judge considered several issues, including the applicable limitation period and the discharge of a pending litigation certificate.

Here are the key points of this case:

  1. The case involves a dispute related to a transfer of real property deemed fraudulent. The issue arises about whether the appellant should be bound by a previous court decision (*Anisman v. RPLA*) regarding the applicable limitation period.
  2. The motion judge determined that the ten-year limitation period applies, and the action was filed within that time. There was no violation of the limitation period.
  3. The motion judge considered the discoverability of the claim, referencing *Grant Thornton LLP v. New Brunswick*, stating that if the two-year limitation period applied, there was a potential issue regarding when the appellant had knowledge of liability. Summary judgment might not have been granted in this case.
  4. The motion judge decided not to discharge the certificate of pending litigation for the delay due to several reasons: a lack of evidence that the appellant had thwarted intentions to deal with the property, most of the delay caused by the appellants, the risk of prejudice to the Bank due to previous fraudulent transfer, absence of security offered to the Bank, and the Bank’s readiness for trial.
  5. The appellants raised three issues on appeal, including whether the motion judge’s reliance on *Anisman (ONCA)* for the ten-year limitation period was a legal error. They also questioned the dismissal of the action for delay, but the motion judge ruled in favour of the Bank, extending the time for trial.

    fraudulent conveyances act
    fraudulent conveyances act

In a separation agreement dated January 10, 2008, Mr. Iskenderov transferred his interest in their jointly held matrimonial home to Ms. Lazareva. On April 28, 2008, Mr. Iskenderov defaulted on a $400,000 line of credit to the Bank of Montreal, which he had obtained fraudulently.

After the Bank obtained a judgment against Mr. Iskenderov for $483,449.89 on January 14, 2009, he made an assignment into bankruptcy on March 24, 2009. He received his bankruptcy discharge in November 2012. The stay of proceedings arising from the bankruptcy was lifted by the court to enable the Bank of Montreal to proceed to pursue its judgment against him under s. 178 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), being a claim not discharged by his discharge from bankruptcy.

The Bank started its litigation to declare the transfer of the home a fraudulent conveyance and to set it aside under the Fraudulent Conveyances Act on June 18, 2013. On February 17, 2015, under s. 38 of the BIA, the Bank acquired from the Trustee the right to commence this action and on March 4, 2015, the Bank obtained an Assignment of Claim from the Trustee. The Bank also successfully obtained a certificate of pending litigation against the property in March 2015. The litigation “moved sluggishly along”, with delay by both parties.

The motion court needed to deal with numerous crucial concerns in the case, including whether a previous decision made by the Court of Appeal for Ontario would bind the current case. In that case (Anisman, Re) the appellate court had formerly ruled that the ten-year period under s. 4 of the RPLA related to an activity to declare a fraudulent conveyance of real property against creditors.

Additionally, the judge had to figure out whether the two-year limitation period under the Limitations Act should be used in the Fraudulent Conveyances Act action as well as if there was an authentic issue for trial regarding when the Bank first had knowledge of the transfer. There was additionally the matter of whether the certificate of pending litigation ought to be discharged because of delay and whether the entire case itself needs to be rejected for the very same reason.

The motion court was not tasked with establishing whether the contested transfer was a fraudulent conveyance; that issue was scheduled for trial if the matter was not discharged either as statute-barred or for delay.

The motion judge found that:

  1. The ten-year limitation period in the RPLA applies and the action was commenced well within that time.
  2. If the two-year limitation period had applied, there was a triable issue regarding when the Bank had the knowledge to give it the “plausible inference” of liability. Therefore summary judgment would not have been granted but the issue would have gone for trial.
  3. He would exercise his discretion not to lift the certificate of pending litigation.
  4. The appellants were more responsible than the Bank for the litigation delay. The matter was ready to be set down for trial, and there is potential merit to the action. For those reasons, the motion judge declined to dismiss the action for delay and granted the Bank’s motion to extend the time to set the action down for trial.

Considerations when evaluating liability and the applicable limitation period: The Court of Appeal for Ontario analysis

During the appeal, the appellants presented three points of contention. Firstly, they challenged the motion judge’s decision to follow the Anisman (ONCA) principle, which upholds the RPLA ten-year limitation period over the Limitations Act’s two-year limitation period in an action to declare a fraudulent conveyance of real property void against creditors. Secondly, they contested the motion judge’s finding of a triable issue regarding when the Bank actually discovered that it may have a claim if the shorter Limitations Act time period applies to its action under the Fraudulent Conveyances Act. Lastly, they raised concerns about the motion judge’s factual findings regarding the delays in the action, which they believed amounted to palpable and overriding errors.

The Court of Appeal for Ontario first looked at the origin of the present RPLA can be traced back to the Real Property Limitation Act, 1833, 3 & 4 Will. 4, c. 27 (U.K.), which has been in existence virtually unchanged since 1833. It was incorporated into the Ontario statutes in 1834 through an Act to amend the Law respecting Real Property, 1834, (U.C.) 4 Will. IV, c.

The wording of the limitation period for actions to “recover any land” in England and Ontario has remained the same over the years, although the duration of the limitation period has varied. In 1910, the provisions were moved from the Real Property Limitation Act, 1833, to form Part I of the Limitations Act, S.O. 1910, c. 34, where they remained until 2004. Parts II and III of the old Act were revoked, and Part I was renamed as the RPLA.

The appeal court held that before the enactment of the new Act, s. 4 of the RPLA or its equivalent provisions were never applied to an action for a fraudulent conveyance of land.

After reviewing appropriate case law, the five appellate judges unanimously agreed on all points of law, including:

  1. The Fraudulent Conveyance Act doesn’t revert property to the grantor; it removes obstacles to the creditor’s recovery and allows additional remedies.
  2. Successful creditors in a fraudulent conveyance action don’t necessarily need property return; a court declaration of conveyance as “void against” them suffices
  3. An Order under the Fraudulent Conveyances Act doesn’t change property title, but creditors can treat the transferee’s property as liable for debts.
  4. Fraudulent conveyance actions do not result in the recovery of land rights; the conveyance is voided.
  5. The Fraudulent Conveyances Act statute aims to enable creditors to execute against the land for debts owed by the transferor.
  6. The interpretation of “an action to recover any land” in the RPLA differs from its application in fraudulent conveyance cases.
  7. “To recover any land” doesn’t mean to regain lost property, but to obtain land by court judgment.

Therefore, the conclusion is that the Limitations Act, 2002 and not the RPLA applies to fraudulent conveyance actions. Therefore, the Court of Appeal for Ontario allowed the appeal by Roufat Iskenderov and Elena Lazareva and made the following orders:

  • The applicable limitation period for the fraudulent conveyance action under the Fraudulent Conveyances Act is two years from the date of discovery of the claim by the respondent under s. 4 of the Limitations Act, 2002.
  • The discoverability issue shall be tried together with the fraudulent conveyance issue and set down for trial in accordance with the order of the motion judge.
  • Costs of the appeal to the appellants in the agreed amount of $7,500.00 inclusive of disbursements and HST.

So there is now going to be a trial of the issue of whether the Bank of Montreal was on time or not in bringing its action under the Fraudulent Conveyances Act, now that it has been settled that the limitation period for bringing the action under the Fraudulent Conveyances Act is a two-year time limit.

Fraudulent Conveyances Act: Conclusion

I hope you enjoyed this Fraudulent Conveyances Act Brandon’s Blog. It is important for everyone to understand what constitutes a fraudulent conveyance of property, either personal property or real estate, especially when the person or company transferring the property is insolvent. Problems with making ends meet are a growing concern in Canada, affecting individuals of all ages and income levels.

Creating a solid financial plan can be the key to unlocking a brighter and more prosperous future. By taking control of your finances, you can prioritize your expenses, set clear financial goals, and build a strong foundation for your dreams to come true. With the right mindset and approach, financial planning can empower you to regain control, eliminate this issue as a source of stress in your life and find peace of mind.

Individuals must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind.

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fraudulent conveyances act
fraudulent conveyances act
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Brandon Blog Post

LEGAL PROCEEDING JUDGMENT LIEN: 2 KINDS OF JUDGMENT LIENS WITH HUGELY DIFFERENT RESULTS IN BANKRUPTCY

In Canada, there are several options in what you can do when someone owes you money and you do not hold any security against any of their property. First, a person or company should obviously make one or more demands on the party that owes them the money before starting any legal proceeding.

If that proves to be unsuccessful, your next steps will probably be governed by how that creditor reacted to your demand. Did they just ignore you or did they put up either a false or somewhat valid dispute to your claim?

One possible next step is that you can retain a lawyer to make a demand to collect the money owed. If those initial efforts to collect payment prove unsuccessful, your lawyer can begin a legal proceeding against the person or company you believe owes you the money. If your legal action is successful in proving your case in court, you will receive a judgment against the party. One option is you can then take this judgment to a debt collector to try to collect on it.

In this Brandon’s Blog, I first explore several issues surrounding being a judgment debtor, having a judgment debt to collect and what happens if the judgment creditor files for bankruptcy? As the title of this Brandon’s Blog suggests, there are 2 kinds of judgment liens and in bankruptcy, the results are very different.

So I first look at what it means to get a judgment and what happens to a judgment creditor and the judgment debt if the debtor files for bankruptcy. To do this, I look at a recent decision from the Court of Queen’s Bench of Alberta which looks at the 2 kinds of judgments in detail.

If you are having financial difficulties collecting a debt from another person or company, you may need legal assistance. If the other person (or their lawyer) refuses to pay, then you can take a legal proceeding to collect the money you are owed.

If you are owed money by someone, your lawyer will want as much information as possible before starting any legal action. The first step is to collect as many details and supporting documents as you can about the debt. Make sure you have a comprehensive overview of the debt, including the amount owed, the name of the debtor, and any relevant deadlines or timelines.

Next, collect the name, address, and phone number of the individual or company who owes the debt – the debtor. Finally, make sure that your proposed legal proceeding is going to be handled for the person or company who is actually owed the debt – the creditor. You need to be precise in who the legal proceeding is against and who it is for.

Finally, make sure that your proposed legal proceeding is going to be handled for the person or company who is actually owed the debt – the debtor. You need to be precise in who the legal proceeding is against and who it is for.

Your lawyer will take the first step of issuing a demand letter to the debtor who owes you money. The letter will most likely threaten that your lawyer will begin a legal proceeding by filing a lawsuit on your behalf if the debt is unpaid after a specific number of days or weeks. If you win, you now have the amount owing as a proven judgment debt.

legal proceeding
legal proceeding

The law in Ontario prevents anyone from beginning a legal proceeding against you for debts that you owe that are over 2 years old. This law is called the Limitations Act, and it applies to any debts that you owe, even if the creditor stops trying to collect the debt.

The Ontario Limitations Act establishes a maximum timeframe within which court proceedings relating to a “claim” may be initiated. In general, someone has 2 years from the time they either knew or ought to have known, that they had suffered a loss or damages as a result of an action or omission on your part.

In general, debt is uncollectible and you cannot be sued on it after 2 years have passed from the time the debt went into default resulting in the party’s claim against you. This result has even been extended to Canadian insolvency proceedings where a creditor files a proof of claim. If there is no judgment, and the claim is over 2 years old, that debt may very well be statute-barred in Ontario and the licensed insolvency trustee would have to disallow that claim.

A judgment is the result of a successful legal proceeding against one or more parties in order to prove the existence of a debt. Getting a judgment made by a provincial court is just the first step. Now the money must be collected. A judgment claim can then be registered against a debtor’s personal property or real property to become a judgment lien. A successful plaintiff in their legal proceeding, now a judgment creditor, would do this to secure payment of the debt. A lien is a method of ensuring payment of money owed by registering against a debtor’s property as security.

The lien arising from a legal proceeding judgment can be properly registered to attach as a security interest in either personal property or real property. Examples against personal property would be:

  • to garnishee wages;
  • obtaining funds from a bank account or non-exempt investments; or
  • amounts to be paid in the future, such as the accounts receivable of a business from various customers.

When it comes to real property, if the judgment debtor is a property owner, a registered judgment lien attaches to the real estate just like a mortgage if properly registered to secure amounts payable.

In Ontario, if you wanted to register a judgment lien against a judgment debtor’s personal property, you would do so under the Ontario Personal Property Security Registration System.

legal proceeding
legal proceeding

What are the judgement proof laws in Ontario?

Being judgment proof means that creditors cannot take your assets if you cannot pay what you owe. The first way this could be is because the only assets you have are the type that is exempt from seizure under provincial law. The Ontario Execution Act stipulates which assets are exempt from seizure.

The second way you may be judgment proof is that your non-exempt assets are fully encumbered by secured loans, such as mortgages and lines of credit, and that there is no value in your property for anyone else, including the judgment debtor. So if you’re judgement proof, your assets are safe from seizure.

If you’re judgment-proof in Ontario, then you don’t have to worry about having your assets seized. However, you will have to learn to live without a bank account, as cash in the bank is not an exempt asset. You also need to be the type of person who doesn’t worry.

You can’t be the type of person who worries about unsatisfied judgments against them or their credit rating taking a hit because of that. You have to plan never to own any non-exempt property in your name because that can be seized.

The non-judgment proof debtor can take action as soon as judgment is given

What if the judgment debtor is not judgment proof but the judgment renders them insolvent? In that case, the assets owned by the judgment debtor are insufficient to pay off the judgment and all of the other debts of the judgment debtor in full. Therefore that judgment debtor may very well need to look at an insolvency proceeding to deal with their debts. Depending on their debt load, they may have to consider either a consumer proposal or a full restructuring proposal or even bankruptcy. Each of these insolvency proceedings is conducted under the Bankruptcy and Insolvency Act (Canada) (BIA).

This is the introduction to the court decision I will now discuss from MNP Ltd v Canada Revenue Agency, 2022 ABQB 320.

At the beginning of Brandon’s Blog, I said that there are two types of judgment liens with very different outcomes in bankruptcy. The Alberta court decision released on May 3, 2020, supports this view. The Reasons for Judgment of the Honourable Mr. Justice M. J. Lema are quite clear and well-reasoned.

The issue that the court had to decide on was “What does a writ of enforcement’s “binding interest”, acquired on registration against a debtor’s land, mean after the debtor’s bankruptcy?”. The fact that the Canada Revenue Agency (CRA) and Royal Bank of Canada (RBC) are respondents, hopefully, gives you a clue as to the 2 kinds of registered judgment liens against a judgment debtor.

The licensed insolvency trustee argued that the pre-bankruptcy priority arising from that interest continues after bankruptcy, that the Trustee acquires that priority position on the debtor’s bankruptcy, and that, on behalf of registered writ-holders (and, in fact, all unsecured creditors). The Trustee further argued that it can assert the binding interest and resulting priority position against a down-title secured creditor (here, CRA) and a secured-against-personal-property-only secured creditor (here, RBC).

Unfortunately, the Trustee’s position as Trustee in the bankruptcy of the judgment debtor was incorrect, according to the Honourable Mr. Justice M.J. Lema. From here on, I will refer to the judgment debtor as the bankrupt.

The key facts are that, before bankruptcy, various registered judgment liens/writs of enforcement were done against various of the bankrupt’s lands. Those writs included writs in favour of the CRA for unpaid taxes and associated amounts. The CRA writs were registered after most or all of the other writs.

The bankrupt was also indebted to the RBC, which held a general security agreement giving it a security interest in all of the debtor’s present and after-acquired personal property. After bankruptcy, via both foreclosures and trustee-initiated sales, various proceeds were harvested from the debtor’s lands.

legal proceeding
legal proceeding

How does CRA get a judgment against a tax debtor? CRA can take its assessment of the taxpayer to Federal Court without notice to the taxpayer or anyone else. Before this happens, CRA has already sent the taxpayer the notice of assessment and if it was not appealed, tried to collect the money. If the taxpayer fails to pay, then CRA’s lawyer through the Department of Justice can go to Federal Court to get the judgment. The judgment that CRA obtains is called a “memorial”.

Read together, s. 223 of the Income Tax Act (ITA) and s. 87 of the BIA clearly provide that:

  • if the Crown registers a memorial against a property in the land titles office
    under ss. 223(5) and (6), it is an ordinary judgment creditor by statute; however,
  • subsection 223(11.1) deems the memorial to be a secured claim in bankruptcy, provided that the requirements of s. 87(1) are met.

There is no ambiguity.

The Trustee acknowledged that, on bankruptcy and per the combined effect of ss. 223(11.1) of the ITA and ss. 86 and 87 BIA, CRA is deemed to be a secured creditor in the bankruptcy. However, the Trustee argued that CRA’s secured position is subordinate to any writs that were registered before the memorial was registered. The court shot down that argument so there is no need to go through the Trustee’s rationale for making it.

By virtue of the ITA, CRA not only has a secured claim but gets to leapfrog everyone else – for sure judgment lien creditors but also prior registered secured creditors registered in the land titles office against the bankrupt property owner. This assumes that the registration is done in the proper land titles office.

The CRA memorial registered against any parcels of land is the first kind of judgment lien. As you can see, Parliament intended that CRA gets a priority secured position ahead of everyone else upon the bankruptcy of the taxpayer landowner. Ahead of not just anyone with a judgment or construction lien, but also any prior registered secured creditors, normally mortgagees.

This takes care of the 1st type of a registered judgment lien in bankruptcy. CRA’s judgment lien moves into a #1 deemed secured lien position if the judgment debtor goes bankrupt.

The court’s analysis proves that the 2nd type of judgment lien, being that of an ordinary judgment creditor does not retain any special status. The judgment creditor is an unsecured creditor and the fact that they registered a judgment lien before the judgment debtor filed for bankruptcy means nothing.

The possibility of a judgment lien-enforcement sale of land or building by the judgment creditor in question or other judgment creditors is effectively eliminated once the debtor is bankrupt. The same is true for a sale of land or building or other disposition of the debtor’s assets by the debtor him-, her-, or itself, regardless of the purchase price. The Trustee is installed to realize the debtor’s non-exempt assets and make sure the creditors are paid, in priority according to the provisions of the BIA.

What is the significance of a judgment lien’s binding interest after the debtor becomes bankrupt? The answer is none.

If there is no bankruptcy, a judgment lien’s binding interest has been interpreted to mean that it:

  1. anchors the judgment creditor’s right to seek a sale of the property;
  2. protects that creditor’s position against sales or other dispositions (e.g. mortgaging or charging) of the property by the judgment debtor; and
  3. provides that the creditor will get actual notice and can share in the proceeds of any legal disposition of the property, such as a writ-based sale by another enforcement creditor, a foreclosure, or a sale by the owner.

A registered judgment lien holder’s binding interest does not make it a “secured creditor” under the BIA. This means that the holder’s interest is not equal to or equivalent to a mortgage or other security against the property for a debt that is due or accruing due. So with the bankruptcy of the judgment debtor, all registered judgment lienholders are merely ordinary unsecured creditors. They have no special rights and can only expect to receive a distribution from the bankruptcy estate once any deemed trust, secured and preferred claims are paid in full, subject to the levy of the Office of the Superintendent of Bankruptcy.

The Trustee tried to argue that the judgment creditors who registered against the real properties of the bankrupt company somehow retained their priority position against each other based on their respective dates of registration. The court decided that this could never be the case. Rather, the BIA prescribes how their ordinary unsecured claims are treated.

The Honourable Mr. Justice M.J. Lema confirmed in his decision that this 2nd kind of judgment lien has no priority of any kind once the judgment debtor is bankrupt. Whether the bankrupt is a man, woman or corporation, the answer is still the same.

legal proceeding
legal proceeding

The judgment debtor’s bankruptcy changed the priorities landscape. The binding interests stemming from judgment lien registration against one or more parcels of land were undercut. Judgment lien creditors other than CRA were relegated to waiting and watching the Trustee gather and sell the assets, regardless of what period of time it takes.

Under that scheme, secured creditors are given priority over unsecured creditors, regardless of their position before bankruptcy. In this case, both CRA (via its deemed security interest against real property) and RBC (via its GSA against personal property) are secured creditors. According to the BIA, they must be paid in full before the unsecured creditors (both preferred and ordinary) are entitled to receive any money.

I hope this Brandon’s Blog on a successful legal proceeding leading to a judgment was helpful to you in understanding more about the 2 kinds of judgments and how they are treated very differently in bankruptcy. It does not matter if it is a personal bankruptcy or corporate bankruptcy.

If you or your company has too much debt, we understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

If you’re struggling with money problems, call the Ira Smith Team today. We’ll work with you to develop a personalized plan to get you back on track and stress-free, all while avoiding the bankruptcy process if at all possible.

Call us today and get back on the path to a healthy stress-free life.

legal proceeding
legal proceeding
Categories
Brandon Blog Post

WHAT ARE EXEMPT ASSETS IN BANKRUPTCY?: ARE THEY REV1EWED UPON THE SAD DEATH OF THE BANKRUPT?

what are exempt assets in bankruptcy
what are exempt assets in bankruptcy

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would like to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

What are exempt assets in bankruptcy?: Bankruptcy exemptions – how what assets you can keep are determined

An assignment in bankruptcy does not require you to give up all of your assets. In bankruptcy law, there are rules for bankruptcy exemptions. Furthermore, every province/territory has regulations that mandate what assets can be kept and how much equity can be retained. Assets of this type are called exempt assets.

Assets that you are allowed to keep that are not accessible to your creditors are exempt assets in a bankruptcy. There are some that fall under federal law and some that fall under provincial law.

So what are exempt assets in bankruptcy in Ontario? To answer the question, we need to look at two statutes: one federal and one provincial. For federal, we look at the Bankruptcy and Insolvency Act (Canada) (BIA). Section 67(1) of the BIA deals specifically with the bankruptcy exemption issue. It states what property of the bankrupt available to creditors does and does not comprise. Property that is not included is:

  • Property held in trust by the bankrupt for any third party.
  • Under provincial law, the property cannot be seized.
  • Payments to the bankrupt are paid under a program that I will describe as social assistance provided by the federal or provincial government.
  • Retirement Savings Plans – The bankrupt’s RRSP or RRIF, except for contributions made in the 12 months before the bankruptcy.

When we discuss the property of a bankrupt, we are referring to the bankrupt’s equity in those assets.

Ontario bankruptcy exemptions: Assets you can keep

As indicated above, one of the asset exemptions in bankruptcy is any property that cannot be seized under provincial law. So what are exempt assets in bankruptcy in Ontario that cannot be seized? For that, we need to go to the Ontario Execution Act. In Ontario, the prescribed amounts for exemptions are:

  • Household furnishings and household appliances – $14,180.
  • Tools and other personal property used to generate income:
    • Exemptions for farmers, being a debtor engaged exclusively in cultivating the soil or farming (and therefore it is that farmer’s principal source of primary income), $31,379 for livestock, fowl, bees, books, tools and implements, and other chattels ordinarily used by the debtor;
    • $14,405 for any other case.
  • $7,117 for a motor vehicle.
  • $10, 783 for a principal residence.

As I have written before, there is an exemption in Ontario for equity in one’s home of not more than $10,783. It is not an exemption for the first $10K, but rather if the total equity is below that amount. Therefore, we can consider the equity in a bankrupt person’s ownership interest in their home to belong to the bankruptcy trustee for all practical purposes.

So this seems pretty straightforward. But what if the bankrupt person dies before the end of the bankruptcy proceedings and the bankruptcy estate administration? A recent decision from the Alberta bankruptcy court, which for reasons I will explain I believe would be instructive for Ontario, answers that question.

what are exempt assets in bankruptcy
what are exempt assets in bankruptcy

What are exempt assets in bankruptcy even in death?

In addition to the above statutory exemptions, since we are always dealing with the bankrupt’s equity in assets, there is another class of assets that form exempt property in a bankruptcy. If any of the bankrupt’s assets are pledged as security to the point where the amount owing to the secured creditor on the secured debt is the same or more than the value of the asset, then a bankruptcy trustee will not attempt to seize it.

So what may have started out as non-exempt property can become property that will not be seized. Two obvious examples are one of the motor vehicles owned by a person worth more than $7,117 that is heavily financed or a principal residence that has mortgages against it that essentially soaks up all the value.

Another type of asset that may be exempt is life insurance policies. If the beneficiary under the policy listed is the spouse, child, parent or grandparent of the deceased, then the funds flow directly to the beneficiary and avoid probate. The bankruptcy of the deceased does not change that.

Although not an asset per se, and only available while the person is living, are wages salary from employment. A bankrupt person is allowed to keep all of their income. However, all Trustees are required to perform an evaluation to see if the bankrupt must contribute by making surplus income payments. The concept of bankruptcy surplus income has been the subject of certain of my prior Brandon Blogs.

Now, what are exempt assets in bankruptcy if the bankrupt person dies before receiving a bankruptcy discharge? On August 3, 2021, the Court of Queen’s Bench of Alberta, Registrar in Bankruptcy L.R. Birkett released Reasons for Decision in Perry (Re), 2021 ABQB 609 (CanLII). In this case, the Trustee sought advice and directions with respect to whether the principal residence exemption continues or is no longer available on the death of the bankrupt. Keep in mind that the principal residence exemption is much different in Alberta than in Ontario. In Alberta, under the Civil Enforcement Act, an Albertan can claim a principal residence exemption up to $40,000.

However, the fact that the issue was over equity in a principal residence is somewhat irrelevant. The real issue is exempt assets in general. So I would frame it as whether any asset exemption continues or is no longer available upon the death of the bankrupt.

Mr. and Mrs. Perry each filed an assignment in bankruptcy on December 19, 2012 (date of bankruptcy) and both remain undischarged bankrupts. At the date of bankruptcy, the bankrupt husband was the only registered owner of the couple’s principal residence. The bankrupt husband died on January 28, 2018.

He did not have any dependents at the time of his death. The bankrupt wife is the only beneficiary under his Will. The widowed bankrupt wife moved from the home and the Trustee sold it.

As a first observation, this is a perfect example of why a bankrupt should not allow the bankruptcy proceedings to drag on. Future events are impossible to predict. Winning a lottery or acquiring an inheritance are the two best reasons to avoid letting the bankruptcy process linger for a very long time. If such a windfall occurs, the bankruptcy trustee administering the bankruptcy estate can claim it.

Types of assets commonly exempt from bankruptcy across Canada: The Registrar’s analysis

The question is does the personal exemption of an undischarged bankrupt remain after his death? In Alberta, the applicable laws under which property is exempt from execution or seizure are set out in the Civil Enforcement Act (CEA) and the Civil Enforcement Regulation(CER). The combined effect of s.88(g) CEA and s 37(1)(e) CER allows an enforcement debtor to claim up to $40,000 of the equity in the debtor’s principal residence as being exempt from execution or seizure. The Registrar noted that the personal exemption is personal to the individual, in this case, the deceased bankrupt husband.

Section 92(1) of the CEA specifically provides that where the enforcement debtor is deceased, the property of the debtor that would be exempt if the debtor were alive remains exempt from writ proceedings against the debtor’s estate for the period of time that the property is required for the maintenance and support of the deceased debtor’s dependents. This allows the dependents of a deceased enforcement debtor the opportunity to access up to $40,000 of exempt equity in the debtor’s principal residence for their needs.

In this case, the widowed bankrupt wife moved out of the house and the Trustee sold it. The exempt equity was no longer necessary for her needs. Therefore the Registrar decided that the deceased bankrupt husband’s exemption was lost on his death. Since the exempt equity was not required to support the bankrupt wife’s needs, the Trustee of the dead bankrupt husband can keep the $40,000 amount as property not covered by the provincial exemption and it is available for the benefit of creditors through the bankruptcy debtor‘s unsecured creditors.

There is a strong argument that if the personal exemption resulted in the bankrupt wife being entitled to her deceased husband’s exemption amount, it would not have been paid to her anyway. Rather, it would have been property available to her Trustee for her unsecured creditors and possibly even a dividend to creditors!

what are exempt assets in bankruptcy
what are exempt assets in bankruptcy

What are exempt assets in bankruptcy and what would happen in Ontario?

What would happen in Ontario with exempt assets (up to their prescribed maximum exempt amount)? Under s.5(1) of the Execution Act, if an execution debtor dies before the seizure and sale of his or her personal property, then whatever personal property the deceased already elected for exemption before death remains valid after death and may not be changed by an executor, administrator or heir of the debtor. s.5(2) of the Execution Act says that If no such election was made prior to death, then, in this order, a surviving spouse, a dependent or a family member has the right to make such an election.

S.5(3) of the Execution Act states:

“(3) The total quantity and total value of personal property of an execution debtor that may be claimed as exempt by a person mentioned in subsection (2) and by the execution debtor before death must not exceed the quantity and value of property that would have been exempt property to just the execution debtor. 2010, c. 16, Sched. 2, s. 3 (9).”

The wording of sections 5(1) and (2) of the Execution Act is very different from that of the relevant Alberta legislation referenced above. So, in my view, it appears that the personal exemption in Ontario would survive and not constitute property available for the Trustee to realize upon, but this is only up to the exemption limit of each class of exempt asset.

However, under a bankruptcy process, along with the bankruptcy protection from unsecured creditors, the bankrupt actually hands over all property to the Trustee. The Trustee either overtly or it is implied, hands back to the bankruptcy debtor any property that is exempt from seizure, either from a provincial statute or because it is a fully encumbered asset because of it being pledged for a secured loan and there is no equity.

In Ontario, since the Execution Act allows for selecting exempt assets after death for the benefit of the deceased Estate, it does not appear to me that bankruptcy would change things for the reasons I have stated. The provincial exemptions, up to their maximum limits, would continue to protect certain property from seizure in bankruptcy.

What are exempt assets in bankruptcy summary

I hope that you found this what are exempt assets in bankruptcy Brandon Blog helpful in describing the personal exemptions in Ontario and whether bankruptcy and death can change that. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

what are exempt assets in bankruptcy
what are exempt assets in bankruptcy

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

what are exempt assets in bankruptcy

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Brandon Blog Post

FALSE PRETENCES: OUR STEP-BY-STEP NEW APPROACH CREDITORS MUST TAKE FOR THEIR CLAIM TO SURVIVE A BANKRUPTCY

false pretences
false pretences

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to this Brandon Blog’s audio version, please scroll to the very bottom and click play on the podcast.

False pretences and bankruptcy introduction

Just because you have filed for bankruptcy, doesn’t mean you are free and clear of your debts. In fact, some debts, such as those obtained with the use of false pretences, may not be discharged through bankruptcy at all.

A creditor can file a form 31 proof of claim for a debt incurred by false pretences. However, it takes more than just stating it in a proof of claim. A court must have made that determination. If not, the debt can be ruled as dischargeable through bankruptcy. But if the court has made that determination and it is the basis of the claim, that debt will not be discharged upon the bankrupt receiving his or her bankruptcy discharge.

I have discussed the topic of false pretences and bankruptcy before, but based on a recent Ontario court decision, I need to break down the basics of this type of debt and how it relates to a person’s bankruptcy.

What is a false pretence?

A false pretence is a false claim or statement made to induce a person to part with property or to give some valuable thing or advantage. It is a criminal offence in Canada. False pretences are the main element of the crime. The essence of this common law offence is that a person knowingly makes a false statement of fact, intending to induce the victim to act on it to his/her detriment. The reason why the false pretence is punished is that it is a fraud on the public.

Some people choose to give false information when they apply for credit or an extension of credit to make their financial situation look better. This is often done by people who have no intention of repaying the debt and therefore use certain fake information with the intent of deliberately misleading the creditor. They are hoping that the potential creditor will not verify all the information. They can get away with this when they are not required to prove false information with the creditor.

Crimes of Dishonesty: What is the criminal offence of false pretences?

The offence of false pretences is a criminal offence that occurs when a person obtains property from another person by deceiving or defrauding the other person. This can be done either by a false representation of existing facts or by a false promise. The person must intend to defraud and in doing so possess the intent to commit an offence. This is a fairly complex offence under paragraph 362(1) of the Canadian Criminal Code and includes a wide variety of possible scenarios. More often than not, it involves obtaining personal property under false pretences.

Section 362(1) of the Criminal Code of Canada states:

“Every one commits an offence who

(a) by a false pretence, whether directly or through the medium of a contract obtained by a false pretence, obtains anything in respect of which the offence of theft may be committed or causes it to be delivered to another person;…”

If you have been charged with a criminal offence under subsection 362(1)(a) of false pretence in Canada, you need to ensure you have a good defence. Sometimes, it is a difficult offence to prove beyond a reasonable doubt. The only thing the Crown really needs to prove is that you made a false representation to obtain the property of another and that the other person believed you (and was therefore defrauded). It is up to you to ensure that you have a good defence.

But I am not writing this Brandon Blog to focus on criminal behaviour. Rather, I want to discuss this concept from the perspective of someone who might file an assignment into bankruptcy.

false pretences
false pretences

Debt arising from false pretences not released by the bankrupt’s discharge

Section 178 (1)(e) of the Bankruptcy and Insolvency Act (Canada) (BIA) states that an order of discharge does not release the bankrupt from any type of financial obligation or liability arising from obtaining property or services by false pretences or fraudulent misrepresentation other than a debt or liability that arises from an equity claim.

In the past, it was quite customary for a creditor seeking judgment for recovery of a debt who is alleging that the debt arises from circumstances caught by section 178(1)(e) of the BIA to also seek both the civil judgment for the money and also a declaration in the judgment that the debt is one of the debts that falls into the category of not being released just because the bankrupt received his or her bankruptcy discharge. This relief was sought even though the defendant was not involved in any bankruptcy proceeding.

In the past, the courts have provided such relief where the evidence before the court substantiated it, notwithstanding the defendant was not an undischarged bankrupt. There are now two cases in Ontario that say such a dual judgment, both the civil award of money plus the BIA debt declaration will not be made anymore where there is not an actual bankruptcy proceeding.

The most recent false pretences released decision in Ontario – Bank of Montreal v. Mathivannan, 2021 ONSC 2538

On April 6, 2021, the Honourable Justice Kurz of the Ontario Superior Court of Justice released his decision in this case. The Bank of Montreal (BMO) was attempting to get a summary judgment against a defendant for $35,723.71 plus pre as well as post-judgment interest as a result of an unpaid conditional sales contract.

BMO alleged in its statement of claim that the claim arose because the defendant had fraudulent intent by purposely misrepresenting her employment and employment income in her application for credit, being a statement in writing, under a conditional sales agreement for an automobile. The false document application was made to the dealership for financing to purchase a vehicle from it. The conditional sales agreement was then assigned to BMO as a normal financing business practice that is used.

The defendant was noted in default. Under the rules, when noted in default, it is as if the defendant admitted the allegations of fact contained in the statement of claim. However, the opposite is not true. The plaintiff is not necessarily entitled to a judgment merely because the allegations of fact are deemed to have been admitted. They actually must be proven.

The deemed admissions of fact that come from the statement of claim are that:

  • Defendant made certain representations as to her employment and her employment income.
  • BMO relied on those representations and provided the defendant credit.
  • Those details supplied by the defendant were false.
  • That false information was created solely for the objective of defrauding BMO to advance credit for the purchase of the vehicle.
  • BMO gave the credit based on those representations.

The court’s decision regarding the false statements in the credit application document

The court determined that BMO’s statement of claim:

  • Falls short to state how the false statements meet the test for false pretences or fraudulent misrepresentation.
  • It did not say whether they were significant or not.
  • The affidavit evidence used to support the statement of the claim simply offers the verdict that they were false and illegal.
  • With those non-inclusions, the pleadings in the claim do not support a finding of fraudulent misrepresentation or false pretences.

The court had no problem in giving BMO judgment for the civil claim for money, being the $35K plus pre and post-judgment interest. Where the court had a problem was in the evidence of the fraud. Therefore, the request for the additional relief of stating that the debt is one not released by the defendant’s discharge when she obtains her discharge from bankruptcy has not yet taken place.

The court did not grant the additional relief to protect this claim in the event the defendant ever declared bankruptcy. But there is another, and in my view, deeper reason, which all plaintiffs finding themselves in the position of BMO and seeking the same kind of two-phase relief must keep in mind.

false pretences
false pretences

The court should not issue hypothetical decisions even with deceitful conduct

The court did not doubt that the defendant made the false statement. What the court said, following the decision of the trial judge in Royal Bank of Canada v. Elsioufi, the Honourable Mr. Justice Dunphy, that there was not an essential legal basis to determine fraud to approve the civil monetary judgment requested. Justice Kurz followed the thinking of Justice Dunphy by stating that even if a positive finding of fraud were called for to release a judgment, he would certainly refrain from doing so.

That is because it would stand for a theoretical declaration applicable to a bankruptcy case before that proceeding beginning. Justice Kurz also concurred with Justice Dunphy that courts ought to make decisions based on examined evidence and not only based on admissions or even on consent.

So the old-fashioned method in Ontario of bringing to court the request for not only a civil monetary judgment, but also a declaration that the debt falls under s.178(1) of the BIA and therefore not discharged upon the discharge of the bankrupt is over. In the words of Justice Dunphy:

“I am moved to issue this brief endorsement for publication purposes as I have noticed a growing practice of some to request such declarations on a routine basis. I may even have signed one or two before giving the matter further thought and research and I have concluded that the practice is to be discouraged.”

Justice Kurz refused to grant BMO any sort of special costs in its motion, as it did not need to make that kind of motion merely to get the civil monetary claim in a judgment.

False pretences: A new creditor blueprint is needed

Now that at least in Ontario, if the old way will not work anymore, what is a creditor to do now? It is not only for a claim falling under false pretenses or fraudulent misrepresentation but potentially many other of the classes of debts falling under section 178(1) of the BIA including false pretences or fraudulent misrepresentation.

The above-noted court decisions can be instructive. First, if a plaintiff believes that the debt was incurred because of a type of fraud, including false pretences or fraudulent misrepresentation, hard evidence should be provided to the court. Proof using genuine documents, a copy of original documents proving breach of trust, is evidence that should be included.

It should not merely be a deponent’s or plaintiff’s conclusion given the known facts being deposed. It should support a finding of the fraud, even though the court may refrain from making a finding of fraud to deliver a civil monetary judgment in favour of the plaintiff. Providing this evidence will be important later on.

Next, there must be an actual bankruptcy. Either the person must have recognized their financial condition of insolvency and filed an assignment in bankruptcy or a creditor have the court issue a Bankruptcy Order against the person. It could even be the judgment creditor able to prove that the person ought to be adjudged bankrupt.

Third, once bankrupt, the judgment creditor should file a proof of claim with the licensed insolvency trustee administering the bankruptcy estate. Proof of the debt would be the judgment which would be attached to the proof of claim and marked as “Schedule A”.

Fourth, does the plaintiff continue to believe that the claim falls under one of section 178(1) of the BIA exclusions and would survive the person’s discharge from bankruptcy, such as false pretences? If so, then the creditor can make an application to the bankruptcy court to lift the stay of proceedings against the bankrupt, for the creditor to attempt to obtain a judgment from the court that the claim of that creditor is not released by the discharge of the bankrupt.

Fifth and final, the creditor having obtained such leave, can then make a new application to the court for the specific finding that the court refused to make in both of the cases I discussed above. The original evidence supplied by the creditor in its original application will now become very important for the court to review. That is why I said it should be pleaded, with evidence when the civil monetary judgment was sought so that it could be relied upon now.

False pretences summary

I hope you enjoyed the false pretences Brandon Blog post. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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Brandon Blog Post

COURT APPOINTED ESTATE TRUSTEE FROM OUR CASE FILES

320efcd005100f3ee3522fefba70f917 3

Court appointed estate trustee: Introduction

In last week’s vlog, CLAIM BANKRUPTCY IN ONTARIO CASE STUDY: SHE REALLY WANTED TO BUT WE STOPPED HER AND SOLVED HER PROBLEMS, our video provided a case study about a doctor we helped solve her pain and get her life back on track. This week, I want to tell you about another one of our cases where we acted as the court appointed estate trustee. It was a bit unusual, however, it did call on me to use my skill sets as a licensed insolvency trustee.

It seems straightforward so what do you need us for?

An estates lawyer we know contacted us to help him solve a problem for his client. His client was a single man. His mother, whose husband predeceased her, passed away. Her only assets were two pieces of real estate; one a commercial property and the other the family home. The fully leased commercial property was producing income.

On the surface, it appeared to be a very simple situation. Two pieces of real estate and the only beneficiaries were the single man and his single sister. There were no spouses or grandchildren involved. So I asked our lawyer friend the obvious question: “It seems straightforward so what do you need us for?”.

The facts

The lawyer told me that:

  1. his client and his sister cannot agree on anything;
  2. the sister’s lawyer is making unreasonable requests;
  3. the sister is a hoarder, which is a mental health issue;
  4. nobody lives in the home and the utilities turned off services a long time ago; and
  5. the sister has hoarded so much personal property in the home you cannot get past the front door!

The lawyer went on to say that the situation cries out for an expert to intervene to get things done so that the properties can be sold and the funds distributed. Neither sibling is capable of agreeing with the other and then doing what needs to be done. The receivership fees to solve their problems would be less than the legal fees spent fighting and not solving anything.

Please don’t call me the receiver

After a thorough discussion with the lawyer, I said it sounds like what you need is a for the Court to appoint a receiver. The lawyer responded that he felt he could get the other side to agree to the appointment of a custodian, but not to any proceedings called anything remotely close to a receiver or licensed insolvency trustee.

I said to my lawyer friend, that problem is easy to solve. How about we call ourselves either an estate trustee or asset manager? He loved the asset manager title.

The agreement

We took part in a conference call with our lawyer friend and the lawyer for the sister. Everyone discussed all the issues and we pointed out our firm’s wealth of experience in acting as a receiver in complex real estate matters.

Each lawyer agreed that assuming the finer points could be worked out, the brother’s lawyer would go ahead with a motion, on consent, to have our Firm act as the court appointed asset manager.

We provided our lawyer friend with a copy of the Ontario Superior Court of Justice Commercial List model receivership order. He then amended it to fit the particulars of this situation and to do a global change from receiver to the title asset manager.

The appointment

Of course, the finer points could not be agreed to. Rather than the matter proceeding on a consent basis, the motion was argued. After hearing all arguments and considering all the evidence, the Court appointed our firm as the asset manager. The commercial property did not have any problems associated with it, so other than to tell you that the property sold, the rest of this story will concentrate on the residence.

ISI 4

Selling the house was the easiest part

The house was not just a house. It was the entire reason for the sister’s existence. Given the mental health issues, we quickly realized that from her perspective, we were about to take away her only joy in life; being able to enter the home and see her loot. It did not matter to her that nobody could enjoy the home and that it was mold infested. This was her baby and we were about to take her baby away from her.

Given these issues, our role was as much like that of a guardian for adults as much as it was about the property in Ontario.

We first obtained quotes for the removal of all of her personal property from the home. I realized that removing the property from the house would only give us another problem as hoarders are not willing to let go of anything. We had to devise a method where the sister would choose what was garbage and what would go to storage. However, even the storage could not go on forever.

The removal plan

We presented our plan to both lawyers. All the items would be removed in front of the sister. If the brother wished to attend he could, but it was not a need. We would also prepay from the proceeds of the sale of the home for six months of storage. That way we capped the brother’s liability for expenses. As items left the house, the sister had to say “garbage” or “storage”. Both sides agreed.

The removal began. What should have taken two weeks took six! The reason was due to mental health issues getting in the way of progress. We understood this and just had to work with it. Eventually, we completed the removal of personal property. We could finally see the entire inside of the house.

We entered with a firm we use to investigate and if necessary do environmental damage remediation work; Hazmat suits and all! Surprisingly, although there was mold, we obtained a verbal report that for our purposes, the home was safe for our purposes to enter for brief periods of time for a realtor and potential purchaser to view. Therefore, we did not need to do any remediation work.

Appraise and sell

The rest of the case could now go ahead. We obtained two appraisals of the house. The house was on a great lot in Toronto in a hot housing market. We listed the house for sale. Due to the house’s condition, it would attract a developer/renovator type of buyer.

After one week on the market, we received four offers to purchase. We rejected all of them and asked for everyone’s best and final offer. The final offer we accepted, subject to Court approval, was above market value. Working with our independent legal counsel, we put our motion material together, obtained the consent of both sides and then obtained Court approval for the sale.

We completed the sale, developed our distribution plan, obtained Court approval for that, distributed the funds and got our discharge.

Court appointed estate trustee: Do you have a financial problem that needs someone else to help you solve?

I present this case study to show how, as a licensed insolvency trustee in the GTA, we can use our skills set in a way that may not seem obvious at first. We look at the entire story of each person or company that comes to us for help.

We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we dealt with this problem and devised an alternate plan for the siblings, allowed them to monetize the assets they were incapable of doing on their own and letting them get on with their lives.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you back on the road to a healthy stress-free life and recover from the pain points in your life.

court appointed estate trustee
court appointed estate trustee
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