What is the difference between a fraudulent preference and a transfer at undervalue?

Preferences

95 (1) A transfer of property made, a provision of services made, a charge on property made, a payment made, an obligation incurred or a judicial proceeding taken or suffered by an insolvent person

(a) in favour of a creditor who is dealing at arm’s length with the insolvent person, or a person in trust for that creditor, with a view to giving that creditor a preference over another creditor is void as against — or, in Quebec, may not be set up against — the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy; and

(b) in favour of a creditor who is not dealing at arm’s length with the insolvent person, or a person in trust for that creditor, that has the effect of giving that creditor a preference over another creditor is void as against — or, in Quebec, may not be set up against — the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is 12 months before the date of the initial bankruptcy event and ending on the date of the bankruptcy.

Preference presumed

(2) If the transfer, charge, payment, obligation or judicial proceeding referred to in paragraph (1)(a) has the effect of giving the creditor a preference, it is, in the absence of evidence to the contrary, presumed to have been made, incurred, taken or suffered with a view to giving the creditor the preference — even if it was made, incurred, taken or suffered, as the case may be, under pressure — and evidence of pressure is not admissible to support the transaction.

Exception

(2.1) Subsection (2) does not apply, and the parties are deemed to be dealing with each other at arm’s length, in respect of the following:

(a) a margin deposit made by a clearing member with a clearing house; or

(b) a transfer, charge or payment made in connection with financial collateral and in accordance with the provisions of an eligible financial contract.

Definitions

(3) In this section,

clearing house means a body that acts as an intermediary for its clearing members in effecting securities transactions; (chambre de compensation)

clearing member means a person engaged in the business of effecting securities transactions who uses a clearing house as intermediary; (membre)

creditor includes a surety or guarantor for the debt due to the creditor; (créancier)

margin deposit means a payment, deposit or transfer to a clearing house under the rules of the clearing house to assure the performance of the obligations of a clearing member in connection with security transactions, including, without limiting the generality of the foregoing, transactions respecting futures, options or other derivatives or to fulfil any of those obligations. (dépôt de couverture)

R.S., 1985, c. B-3, s. 95

 1997, c. 12, s. 78

 2004, c. 25, s. 56

 2007, c. 29, s. 100, c. 36, ss. 42, 112

Transfer at undervalue

96 (1) On application by the trustee, a court may declare that a transfer at undervalue is void as against, or, in Quebec, may not be set up against, the trustee — or order that a party to the transfer or any other person who is privy to the transfer, or all of those persons, pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor — if

(a) the party was dealing at arm’s length with the debtor and

(i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy,

(ii) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, and

(iii) the debtor intended to defraud, defeat or delay a creditor; or

(b) the party was not dealing at arm’s length with the debtor and

(i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of the bankruptcy, or

(ii) the transfer occurred during the period that begins on the day that is five years before the date of the initial bankruptcy event and ends on the day before the day on which the period referred to in subparagraph (i) begins and

(A) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, or

(B) the debtor intended to defraud, defeat or delay a creditor.

transfer at undervalue means 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; (opération sous-évaluée)

[7] The Urbancorp group consists of a number of corporations and business entities all ultimately owned by Alan Saskin, and principally involved in the development of residential real estate projects in the Greater Toronto Area.

[8] Speedy operates an electrical contracting business and performed electrical services for members of the Urbancorp group.

[9] In September 2014, Speedy made a personal loan to Mr. Saskin for $1 million, with interest at the rate of 12.5%, evidenced by a promissory note due in one year dated September 23, 2014 (the “Promissory Note”). In addition, Speedy completed electrical work for Edge (an Urbancorp entity) on Lisgar Street in Toronto, ultimately registering a construction lien against the project for $1,038,911.44 on September 30, 2015.

[10] On November 14, 2015, KRI, Speedy, Mr. Saskin and Edge executed a debt extension agreement (the “DEA”) under which:

• Speedy agreed to extend the due date of the Promissory Note to January 30, 2016;

• Edge confirmed its debt to Speedy and Speedy agreed to discharge its lien against the Edge project;

• In consideration of the extension of the Promissory Note, the discharge of the lien, and payment by Speedy to KRI of $2.00, KRI agreed to guarantee the two outstanding debts, secured by a collateral mortgage in Speedy’s favour over 13 KRI condominium units and 13 parking spaces; and

• KRI agreed to provide evidence showing that there were no common element arrears of the subject condominium units or to pay such arrears on closing, confirmed the taxes on the units were up to date, and agreed that it would obtain a discharge or postponement of a Travelers Guarantee Company of Canada mortgage registered on the subject units.

[11] Pursuant to the DEA, on November 16, 2015, Speedy discharged its lien against the Edge property, and the collateral mortgage in favour of Speedy was registered on title to the KRI properties.

[...]

[18] On September 15, 2016, Newbould J. made an order establishing a procedure to identify and quantify claims against the CCAA-protected entities and their current and former directors and officers. Speedy filed a proof of claim, dated October 19, 2016, against KRI in the amount of $2,323,638.54 pursuant to its secured guarantee. On November 11, 2016, the Monitor disallowed the claim on the basis that the granting of the guarantee could be voidable as a transfer at undervalue or as a fraudulent conveyance or preference. On November 25, 2016, Speedy filed a notice disputing the disallowance.

[19] After some delay, the Monitor brought a motion on March 7, 2018, for an order declaring that Speedy’s claim be disallowed in full. Guy Gissin, in his capacity as the court-appointed functionary of UCI in proceedings in Israel (the “Israeli Functionary”) participated in the court below, and was represented in court in this appeal.[1] The Israeli Functionary was appointed in 2016 pursuant to an application under Israel’s insolvency regime. The Israeli Functionary supported the Monitor on its motions to disallow Speedy’s claim. The Israeli Functionary also sued Mr. Saskin and others in Israel, alleging, among other things, fraud and securities law violations in connection with the bond underwriting.

[20] On May 11, 2018, the motion judge dismissed the Monitor’s motion for an order disallowing Speedy’s claim.

[...]

[24] A “transfer at undervalue” is defined as 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”: BIA, s. 2. “Related persons” is defined, and includes entities that are controlled by the same person: BIA, s. 4(2). 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: BIA, s. 4(4). Persons who are related to each other are deemed, in the absence of evidence to the contrary, not to deal with each other at arm’s length: BIA, s. 4(5).

[25] The FCA is provincial legislation that is also available in insolvency proceedings for the declaration of fraudulent transfers as void. Sections 2 to 4 provide as follows:

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

3. Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section.

4. Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon a valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it is protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser.

[...]

[40] I agree with Speedy. While s. 96 no doubt is a tool to address “asset stripping” by a debtor, as the Monitor contends, a bankruptcy trustee or CCAA monitor that seeks to impugn a transfer under that provision must nevertheless meet the requirements of the section to establish that the transfer in question is void. The point of departure is to consider the specific words used in this section of the BIA.

[41] Section 96 provides for a court order to declare void as against the trustee (in this case the Monitor) a “transfer at undervalue” or to require the “party to the transfer” or “any other person who is privy to the transfer” to pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor.

[42] “Transfer at undervalue” is defined in s. 2 of the BIA to mean:

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. [Emphasis added.]

[43] A “transfer” is defined in Black’s Law Dictionary, 11th ed. (Saint Paul: Thomson Reuters, 2019) as “any mode of disposing of or parting with an asset or an interest in an asset, including a gift, the payment of money, release, lease, or creation of a lien or other encumbrance”. A “transaction”, by contrast, is defined as “something performed or carried out, a business agreement or exchange”. While the DEA was a transaction between KRI, Speedy, Edge and Mr. Saskin, the transaction contemplated a transfer, which was the secured guarantee given by KRI to Speedy. The only parties to the transfer, as opposed to the transaction, were KRI and Speedy.

[44] The DEA is not the “transfer” – the transfer sought to be impugned by the Monitor is the secured guarantee provided to Speedy. The overall agreement pursuant to which the guarantee and security were provided to Speedy does not make the entirety of the DEA the “transfer” for the purpose of s. 96.

[45] I also disagree with the Monitor’s argument that, because s. 96 uses the term “party” rather than “creditor”, the court is not limited to considering the relationship between KRI and Speedy, but should also consider the relationship between KRI and other “parties” to the DEA (Edge and Mr. Saskin). The reason that s. 96 uses the term “party” rather than “creditor” is that it applies to a broader range of dealings than s. 95, including gratuitous transfers to persons who are not creditors of the debtor.

[46] The distinction between a person who is a “party to the transfer” and a “person who is privy to the transfer” underscores that the focus in determining whether the dealing was non-arm’s length is on the relationship between the parties to the particular transfer. If the transfer is between non-arm’s length parties, then a person who is privy to the transfer (defined under s. 96(3) as “a person who is not dealing at arm’s length with a party to a transfer and, by reason of the transfer, directly or indirectly, receives a benefit or causes a benefit to be received by another person”) may be ordered, together with the transferee, to pay the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor. In this case, if the secured guarantee were impeachable (whether because KRI and Speedy as the parties to it were non-arm’s length, or because fraudulent intent and insolvency were established), then Edge, as KRI’s privy, and beneficiary of the transfer, could be subject to an order for a remedy in favour of KRI. Edge is a privy to KRI, but not a party to the transfer.

[47] In argument, the Monitor asserted that the “transfer” here is in fact the transfer by Edge to KRI of Edge’s indebtedness to Speedy. If this is the transfer sought to be impugned, then the remedy is properly sought against Edge itself. The non-arm’s length relationship between Edge and KRI, as entities under common control, would be relevant if the relief sought by the Monitor were against Edge. To the extent that Edge received value from KRI for no consideration, Edge, as a non-arm’s length party, would be liable to account for such value to KRI. The problem, of course, is that Edge is insolvent and also under CCAA protection. However, it would be an unwarranted interpretation of s. 96(1)(b) to void the guarantee KRI provided to Speedy on the basis that KRI and Edge (the beneficiary of the transaction) are related. Indeed, the Monitor has cited no case or commentary to support this interpretation of s. 96(1)(b), which ignores its plain meaning.

[48] In conclusion, s. 96 is a remedy to reverse an improvident transfer that strips value from the debtor’s estate, where its conditions are met. The interpretation of the section must be considered in relation to the remedy that is sought. The remedy in this case is to prevent Speedy from enforcing its secured guarantee against KRI. While the reason KRI provided the guarantee was to accommodate its related party Edge, this does not transform the transfer sought to be impugned – the secured guarantee – into a transfer between non-arm’s length parties. The focus of the motion judge was properly on the relationship between KRI and Speedy, not between KRI and the beneficiary of the transaction, its related party Edge. As such, I would dismiss this ground of appeal.

[...]

[52] “Badges of fraud” can provide an evidentiary shortcut that may help to establish the subjective intention of a transferor both under s. 96 of the BIA and s. 2 of the FCA: see e.g., Goldfinger, at para. 72; Purcaru v. Seliverstova, 2016 ONCA 610, 39 C.B.R. (6th) 15, at para. 5. In Re Fancy (1984), 1984 CanLII 2031 (ON SC), 46 O.R. (2d) 153 (H.C.J.), Anderson J. explained the role of “badges of fraud” in the determination of fraudulent intent under s. 2 of the FCA. He stated at p. 159:

Whether the [fraudulent] intent exists is a question of fact to be determined from all of the circumstances as they existed at the time of the conveyance. Although the primary burden of proving his case on a reasonable balance of probabilities remains with the plaintiff, the existence of one or more of the traditional "badges of fraud" may give rise to an inference of intent to defraud in the absence of an explanation from the defendant. In such circumstances there is an onus on the defendant to adduce evidence showing an absence of fraudulent intent. Where the impugned transaction was, as here, between close relatives under suspicious circumstances, it is prudent for the court to require that the debtor's evidence on bona fides be corroborated by reliable independent evidence.

[53] The burden of proving fraudulent intent is on the party seeking to avoid the transfer. While badges of fraud are indicia of fraudulent intent, their presence does not mandate an inference of fraud to be drawn. The alleged badges of fraud must be considered in the context of the entire record. “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”: Goldfinger, at para. 72.

[54] In Goldfinger, as in this case, the appellant argued that the trial judge had “failed to identify and to consider the badges of fraud that were present”: at para. 50. The court found that the trial judge had assessed the evidence and made findings of fact that supported his reasons for finding an absence of intent. The findings were available on the record: at para. 75.

[55] Badges of fraud are non-exhaustive and may or may not be applicable to a given fact situation: see e.g., FL Receivables Trust 2002-A (Administrator of) v. Cobrand Foods Ltd., 2007 ONCA 425, 85 O.R. (3d) 561, at para. 39; Indcondo, at paras. 52-53. Since badges of fraud are an evidentiary shortcut, and the analysis requires taking into account “all of the circumstances as they existed at the time of the conveyance” (Fancy, at p. 159), it follows that the failure to identify any particular badge of fraud and to undergo a mechanical analysis does not justify appellate intervention.

[56] The Monitor accepts that the failure to consider a particular badge of fraud is not, in itself, a legal error justifying review on a correctness standard. The real issue here is whether the trial judge failed to take into account the entirety of the fact situation, and made conclusions of fact, or mixed fact and law, that were not supported by the record. In other words, was the motion judge’s refusal to find that the transfer from KRI to Speedy was made with fraudulent intent adequately supported by the entirety of the record?

[...]

[64] Despite this one broad statement, however, there is no special rule that makes evidence of a debtor’s insolvency determinative as opposed to one factor that may be considered. The common issue under s. 2 of the FCA and s. 96 of the BIA is whether the debtor made the conveyance or transfer with the intent to defraud, delay or defeat creditors. A number of the authorities referred to earlier in these reasons relating to the role in the analysis of badges of fraud, including the debtor’s insolvency, were in the context of the provincial legislation. Insolvency can be a factor, but is not sufficient or decisive. Instead, the crucial question remains whether the applicant has proved the fraudulent intent of the debtor.

[...]

[75] According to the Monitor, the relevance of the lien being out of time is simply that it would support the Monitor’s submission that there was no consideration for the secured guarantee and it is void as a transfer at undervalue. Whether the secured guarantee was or was not a “transfer at undervalue” as defined in s. 2 of the BIA was not the question on which the motion judge’s disposition of the motion turned. At para. 30 of his reasons he noted that he decided the motion based solely on the arm’s length relationship and lack of fraudulent intent and that it was not necessary to deal with a number of other issues raised by the parties orally and in their factums.

[76] I have determined that the motion judge made no error in his factual conclusions that the transfer in question – the secured guarantee – was between arm’s length parties, and was for the purpose of obtaining Speedy’s cooperation to allow the Urbancorp group to refinance, and not with a fraudulent intent. Whether or not the secured guarantee was a transfer at undervalue is not a question that was definitively answered by the motion judge; nor does it fall to be determined in this appeal.

[1] The trustee in bankruptcy of the estate of National Telecommunications Inc. moves for an order requiring Brian Coones and his company, 1219172 Ontario Inc., to pay $159,330 to the estate under s. 96 of the Bankruptcy and Insolvency Act, RSC 1985, c. B- 3. The trustee alleges that while insolvent, the bankrupt paid this amount to Mr. Coones’ company and received no value in return.

[...]

[3] The phrase “transfer at undervalue” is defined in s. 2 of the BIA as follows:

transfer at undervalue means 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;

[4] It is apparent from this definition that the topic concerns transactions prior to bankruptcy in which a bankrupt depleted its assets to the prejudice of its creditors. Parliament has determined that in such cases, the trustee, on behalf of the creditors, may move to declare the transfers void so as to make the transferred assets and/or the value differential between the assets transferred and consideration received exigible by the trustee. There is a very broad range of pre-bankruptcy transfers of assets that may later be said to have depleted an estate. Some definitional meat is required to narrow the range so as to determine which transactions will be actionable by a trustee on behalf of an estate. Section 96 of the BIA provides the required definitions.

[5] Section 96 identifies three different sets of transactions for which a trustee can seek a remedy. First, if the bankrupt and the recipient of its assets were dealing at arm’s length, then the trustee can seek a remedy if the transfer at undervalue occurred up to one year prior to the initial bankruptcy event, the bankrupt was insolvent or rendered insolvent at the time, and in making the transfer at undervalue, the bankrupt intended to defraud, defeat, or delay a creditor. 

[6] Where the bankrupt and the recipient of its assets were not dealing at arm’s length then the rules differ depending on when the transaction occurred. The second set of transactions that a trustee can attack under s. 96 involves cases where the parties to the transfer at undervalue were not dealing at arm’s length and the transfer occurred within one year of the initial bankruptcy event. In that case, the transfer can be impugned without any further proof. In my view, it is Parliament’s intention that relief should be available nearly automatically on proof of those facts. Re Paul W. Lee, a Bankrupt, 2017 ONSC 388 (CanLII) at para. 16.

[7] The third situation that a trustee can be attack under s. 96 involves cases where the parties to the transfer at undervalue were not dealing at arm’s length but the transfer at undervalue occurred more than one year before the initial bankruptcy event but no more than five years before that event. In this third situation, Parliament has re-asserted the same requirements that apply to a transfer at undervalue to an arm’s length party. That is, to obtain relief in the third case, a trustee needs to prove that the bankrupt was insolvent or rendered insolvent at the time of the transfer at undervalue and that in making the transfer at undervalue, the bankrupt intended to defraud, defeat, or delay a creditor.

[8] The court is asked to determine therefore, first, whether the bankrupt transferred property to Mr. Coones and his company for no consideration or for conspicuously less consideration than the fair market value of the transferred property. If a transfer at undervalue occurred, then the next issue is whether the bankrupt and Mr. Coones and his company were dealing at arm’s length. If they were not at arm’s length, then the timing of the transaction(s) will dictate whether any further proof is required by the trustee in order to succeed. If the parties were operating at arm’s length or, if they were not at arm’s length and the transaction occurred more than one year but less than five years prior to the initial bankruptcy event, then the trustee must prove two further facts (insolvency and intention) in order to be entitled to relief under s. 96.

[...]

(a) Transfer at Undervalue

[30] As set out at the outset, the first question for resolution is whether the bankrupt disposed of property for no consideration or for conspicuously less than the fair market value of the property. This process for assessing this question is guided by s. 96 (2). It requires the trustee to provide its opinion of the fair market value of the property transferred by the bankrupt and as to the actual consideration given to or received by the bankrupt. Here, the value of the property that the bankrupt gave to Mr. Coones’ corporation is simply the amount of money paid over the time period that is determined to be relevant. The trustee has opined that the value of the services provided by Mr. Coones over that same time period is zero.

[31] Subsection 96 (2) provides further that “the values on which the court makes any finding under this section are, in the absence of evidence to the contrary, the values stated by the trustee.”

[...]

(b) Were the Bankrupt and Mr. Coones (and his Corporation) Dealing at Arm’s Length

[41] Mr. Coones looks to income tax law to define an “arm’s length” relationship. He points out that under s. 4 (4) of the BIA, the question of whether persons who are not related to each other were operating at arm’s length is a question of fact for the court. It is agreed that Messrs. Guyatt and Coones are not relatives.

[42] In Canada v McLarty, 2008 SCC 26 (CanLII) the Supreme Court of Canada determined that all relevant factors must be considered to determine if parties operate at arm’s length. While there is no one factor that predominates, the Court accepted that one should consider whether the parties were operating with a common mind. Did one control the other for example? Were they propounding or representing separate legal or economic interests? Again, the answers to these questions should take into account the entirety of the relationship.

[43] In Juhasz Estate v Cordeiro, 2015 ONSC 1781 (CanLII) Wilton-Siegel J. refined the issue for s. 96 of the BIA in particular. At para. 41 of the decision, Wilton-Siegel J. encapsulated the analysis as follows:

Section 96 is directed at transfers by insolvent persons for a consideration that is materially or significantly less than the fair market value of the property. In this context, the concept of a non-arm’s length relationship is one in which there is no incentive for the transferor to maximize the consideration for the property being transferred in negotiations with the transferee. It addresses situations in which the economic self-interest of the transferor is, or is likely to be, displaced by other non-economic considerations that result in the consideration for the transfer failing to reflect the fair market value of the transferred property.

[44] I wholly agree with and adopt Mr. Justice Wilton-Siegel’s approach.

[45] I cannot find that the bankrupt controlled Mr. Coones or vice versa. Neither can I find that they operated with a common mind. Mr. Guyatt’s explanation of the reason for paying Mr. Coones confirmed that the bankrupt did not approach the relationship with Mr. Coones to advance the bankrupt’s self-interest in maximizing its value. The best he was willing to say was that he was operating on some notion of fairness that led him to pay Mr. Coones more than he was making himself. Mr. Coones’ counsel submitted that this is not uncommon when a business is failing. Employees get paid before equity holders. That is generally true but only if the employees are necessary to generate revenue. If a business is failing, one expects it to cut costs that do not contribute to its ability to produce new revenue to survive. This is all hypothetical as there was no evidence on this point.

[46] I do not know if Mr. Guyatt or Mr. Coones did a deal because they were friends or if something else was afoot. I do not believe that either Mr. Guyatt or Mr. Coones chose to favour the court with the details of their actual relationship. Apart from reliance on their friendship, the trustee’s arguments to support the finding of a non-arm’s length relationship essentially turn on the same facts that underlie the finding that the agreement between the parties was a transfer at undervalue. Among other things, the trustee relies on the lack of evidence that Mr. Coones actually did anything of value; that he was paid more than Mr. Guyatt; and that payments continued while the bankrupt was already insolvent, to support a finding that they dealt on a non-arm’s length basis.

[47] The BIA allows for the possibility that transfers at undervalue can occur between parties who deal at arm’s length. If a finding that parties are not at arm’s length is be made based upon the same facts that supported the finding of a transfer at undervalue, there is a risk of depriving the concept of arm’s length dealings of any independent content. The finding of a transfer at undervalue would answer both questions. 

[48] However, in this case, the finding of a transfer at undervalue is essentially an inference drawn from the surrounding facts. There was no valuation exercise as one might normally expect. Many of the same facts that led me to infer that there was no value provided by Mr. Coones or his corporation prevent me from concluding that the bankrupt entered into its agreement with the corporation while acting under normal commercial incentives. I do not think that I am creating a circularity by finding that some of the same facts can lead to two different inferences. Nor am I depriving the arm’s length relationship issue of content. I am not finding that there was a non-arm’s length relationship because the parties entered into a transfer at undervalue. Rather, with full focus on each question independently, looking at the totality of the evidence concerning the relationship, I cannot find that a company that agrees to pay someone more than it pays its owner, for doing nothing, and keeps paying that person until it is in the very last throes of a fatal insolvency was dealing with that person at arm’s length. While the court does not know the full facts of the relationship between the bankrupt and Mr. Coones and never will, it is clear that there were other incentives at play that deprived their relationship of normal commercial imperatives like maximizing one’s own value and even preserving one's own going concern. As such, I find that they were not dealing at arm’s length.

[49] On these findings alone, all payments made by the bankrupt to Mr. Coones’ company for the one year prior to the date of the initial bankruptcy event, that is, from and after March 27, 2014, fall within s. 96 (1)(b)(i) of the BIA.

[...]

[53] The law recognizes that it is nearly impossible to prove another person’s actual subjective intention. The trustee therefore relies on an analysis of the traditional “badges of fraud” that, at common law, can be accessed to establish a presumption of intention.

[54] In Purcaru v. Seliverstova, 2016 ONCA 610 (CanLII), at para. 5, Miller J.A. wrote for the Court of Appeal:

If a challenger raises evidence of one or more ‘badges of fraud’ that can give rise to an inference of an intent to defraud, the evidential burden then falls on those defending the transaction to adduce evidence showing the absence of fraudulent intent.

[55] In A. Farber & Partners Inc. v. Goldfinger, 2013 ONSC 6635, Brown J.A. listed the following as among the badges of fraud that can be accessed for these purposes:

i. The transfer was made to a non-arm’s length person;

ii. The transferor was insolvent at the time of the transfer; and

iii. The consideration for the transfer was grossly inadequate.

[56] The trustee relies on additional facts whose adequacy as badges of fraud are challenged by Mr. Coones. However, it does not need to go beyond the foregoing three badges of fraud which I have already found as facts above.

[57] Upon the trustee proving that the payments made to Mr. Coones’ corporation were accompanied by badges of fraud, the court will presume that the bankrupt intended to defraud, defeat, or delay a creditor unless the responding party proves that the bankrupt did not have such intent. Mr. Coones submitted that the payments were made in the ordinary course as part of his consulting agreement to which the bankrupt had agreed in April, 2012, some 18 months before it became insolvent. Would that there was evidence of bona fide value flowing from Mr. Coones or his company to the bankrupt even at April, 2012, this argument might have had more weight. Having already found that the bankrupt was not operating with a commercial mind in dealing with Mr. Coones, continuing such operations when insolvent cannot be said to be payments in the ordinary course that might in other circumstances be sufficient to rebut a presumption of fraudulent intent. While a solvent company may be entitled to make payments for non-commercial or uneconomic motivations, making those payments when insolvent, for no consideration, and while actively defrauding one’s principal lender, cannot be seen to be acts in the ordinary course of business. The responding parties have not rebutted the presumption of fraudulent intent.

[21] Section 2 of the BIA defines “transfer at undervalue” to mean 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.

[22] In this case, there is no dispute that the consideration received by the debtor (NTI) was the three payments by Stalt Telcom to NTI or on its behalf totaling $720,740 and the fair market value of all the payments from NTI to Stalt Telcom was $1,055,581.

[23] Section 96(2) of the BIA provides:

 96(2) In making the application referred to in this section, the trustee shall state what, in the trustee’s opinion, was the fair market value of the property or services and what, in the trustee’s opinion, was the value of the actual consideration given or received by the debtor, and the values on which the court makes any finding under this section are, in the absence of evidence to the contrary, the values stated by the trustee.

[24] The Trustee has provided evidence which I accept that in its opinion, the fair market value of the property Stalt Telcom provided to NTI was $720,740, the sum of the three amounts advanced by Stalt Telcom on November 18, 2013, December 13, 2013 and January 31, 2014 and the value of the actual consideration given by NTI to Stalt Telcom was $1,055,581, the total of all the payments.

[25] Stalt Telcom and Cosimo submit that their evidence that the amounts paid by Stalt Telcom to NTI were an investment in a joint venture and the monies received back from NTI was Stalt Telcom’s share of the profits in the joint venture constitute the “evidence to the contrary” referred to in s. 96(2) of the BIA such that there was no transfer at undervalue.

[26] I do not accept the evidence of Cosimo and Richardson that the transactions were a joint venture and the monies Stalt Telcom received represented a share of profits. The Respondents have produced no agreements or other documents that confirm such an agreement. The only evidence to that effect is the evidence of Cosimo and Richardson which is inconsistent and not credible when viewed against the other evidence.

[...]

[32] For the above reasons, therefore, there is no evidence to the contrary to dislodge the Trustee’s opinion. Accordingly, the difference between the value of the consideration received by NTI ($720,740) and the value of the consideration given by NTI ($1,055,581) is $334,841.00.

2) Arm’s-Length

[33] There is no evidence that NTI and Stalt Telcom or its principles are related to each other and the parties agree that the two companies are not “related persons” within the definitions of related persons in s. 4 of the BIA.

[34] Section 4(4) of the BIA provides that whether persons not related to one another were at a particular time dealing with each other at arm’s-length is a question of fact.

[35] The Trustee submits that NTI and Stalt Telcom were not dealing with each other at arm’s-length at the time of the transactions in issue. The Trustee points to the suspicious nature of the transactions including the large returns to Stalt Telcom, the lack of a credible or consistent explanation for the transactions, and the absence of any documentation or security in respect of the transactions. The Trustee submits that the transactions have none of the indicia of transactions done between parties who are dealing at arm’s-length.

[36] Stalt Telcom submits that it was operating at arm’s-length from NTI in respect of the transactions. It relies on Cosimo’s evidence that Stalt Telcom operated entirely independently from NTI and had no prior dealings with it. It maintains based on the evidence of Stalt and Richardson that Stalt Telcom was engaged in a joint venture with NTI.

[37] In an earlier proceeding involving NTI styled In the Matter of the Bankruptcy of National Telecommunications Inc., a bankrupt, 2017 ONSC 1475, Myers J. held that the mere fact that a transfer was made for less than fair market value consideration was not sufficient on its own to support a finding of non-arm’s-length dealing. Rather, in reaching such conclusion, the court must look at the totality of the evidence concerning the relationship between the parties and “normal commercial imperatives” (see para. 48). The indicia of a commercial transaction have also been described as “ordinary commercial incentives”.

[38] The approach of considering the degree to which the transaction departs from what would otherwise be considered ordinary commercial incentives is similar to the approach adopted by Wilton-Siegel J. in Juhasz (Trustee of) v. Cordeiro, 2015 ONSC 1781 at paras. 41 and 42:

41 Section 96 is directed at transfers by insolvent persons for a consideration that is materially or significantly less than the fair market value of the property. In this context, the concept of a non-arm’s length relationship is one in which there is no incentive for the transferor to maximize the consideration for the property being transferred in negotiations with the transferee. It addresses situations in which the economic self-interest of the transferor is, or is likely to be, displaced by other non-economic considerations that result in the consideration for the transfer failing to reflect the fair market value of the transferred property.

42 While I do not think that the existence of a partnership or joint venture relationship is sufficient on its own to establish a non-arm’s length status, I consider that the absence of any economic interest of a transferor at the point of termination of a business relationship, together with evidence of accommodation of the wishes of the transferee, can support a finding that there was a non-arm’s length relationship. [Emphasis Added.]

[39] The idea that arm’s-length dealing should display certain characteristics that conform with generally-accepted commercial incentives has been upheld by the Supreme Court of Canada. In R. v. McLarty, 2008 SCC 26, Rothstein J. explained,

43 It has long been established that when parties are not dealing at arm’s-length, there is no assurance that the transaction “will reflect ordinary commercial dealing between parties acting in their separate interests” (Swiss Bank Corp. v. Minister of National Revenue (1972), 1972 CanLII 191 (SCC), [1974] S.C.R. 1144 (S.C.C.), at p. 1152). The provisions of the Income Tax Act pertaining to parties not dealing at arm’s length are intended to preclude artificial transactions from conferring tax benefits on one or more of the parties. Where the parties are found not to be dealing at arm’s length, the taxpayer who has made an acquisition is deemed to have made the acquisition at fair market value regardless of whether the amount paid was in excess of fair market value. [Emphasis Added.]

[40] Various decisions of the Tax Court of Canada dealing with the issue of arm’s-length transactions provide additional support for the position that transactions must display a commercially legitimate character in order to be considered the product of arm’s-length dealing. In Crawford & Co. Ltd. v. M.N.R., 1999 CanLII 352 (T.C.C.), Porter, D.J.T.C.C. held,

43 In the end it comes down to those traders, strangers, in the marketplace. The question that should be asked is whether the same kind of independence of thought and purpose, the same kind of adverse economic interest and same kind of bona fide negotiating has permeated the dealings in question, as might be expected to be found in that marketplace situation. If on the whole of the evidence that is the type of dealing or transaction that has taken place then the Court can conclude that the dealing was at arm's length. If any of that was missing then the converse would apply.

[41] Based on the above, therefore, I conclude that the finding of fact mandated by s. 4(4) of the BIA requires a determination, based on the totality of the evidence, of whether the transaction involved generally accepted commercial incentives such as bargaining and negotiation in an adversarial format and the maximizing of a party’s economic self-interest. In the absence of any such indicia, the inference that arises is that the parties were not dealing at arm’s-length.

[42] In the present case, there is no evidence that the three transactions in issue displayed any of the characteristics of ordinary commercial incentives, regardless of whether the transactions were loans or an investment in a joint venture. In fact, the evidence in respect of the transactions is just the opposite. The evidence of the participants to the transactions provides different versions of what took place, none of which match the accounting or establish any form of bargaining or negotiation.

[43] If the transactions were loans, there is no evidence of what would normally occur between two parties engaged in a commercial lending transaction. While there is evidence of a meeting between Guyatt and Cosimo, there is no evidence of any negotiation concerning interest rates, term, security or repayment. Nor do the amounts paid by NTI to Stalt Telcom over and above repayment of the monies provided bear any resemblance to a commercial lending rate or otherwise. They appear to be random payments.

[...]

[55] Section 96 (1)(b)(ii) of the BIA encompasses transactions that occurred five years prior to the date of the initial bankruptcy event, which I have found is March 26, 2015, if NTI was insolvent at the time of the transactions or it intended to defraud, defeat or delay a creditor. In my view, the evidence establishes all of the elements required to bring the impugned transactions within s. 96 (1)(b)(ii).

[...]

[58] Accordingly, pursuant to s. 96 of the BIA, the payments by NTI to Stalt Telcom between December 9, 2013 and November 4, 2014 to the extent that they are more than the amounts received by NTI from Stalt Telcom are void as being transfers at undervalue. Stalt Telcom and Cosimo Stalt, who is privy to the transfers, are ordered to pay to the Trustee for the Estate of NTI the sum of $334,841.00 which is the difference between the monies paid by Stalt Telcom to or on behalf of NTI and the monies paid by NTI to Stalt Telcom.

[3] Thomas G. Assaly (“Tom” or the “Bankrupt”) is an undischarged Bankrupt and one of Thomas C. Assaly’s (“Tom Sr.”) three children. The Funds were initially paid to Tom’s lawyer in trust as part of his share of Tom Sr.'s Estate, subject to a condition that he provide a letter of credit to cover a potential claim against the Estate. Tom failed to provide the letter of credit and eventually his lawyer paid the Funds into court. Tom argues that before he declared bankruptcy, he assigned his interest in the Funds to the Thomas C. Assaly Charitable Foundation (the “Foundation” or the “Charitable Foundation”) in Florida, for the benefit of his children. As a result, he argues that the Funds should be paid out to the Foundation.

[...]

Issue #3- Is Tom's purported assignment of his interest in the Funds to the Foundation a reviewable transaction?

[49] The assignment agreement made as of January 31, 2014, assigning all of Tom’s right, title, and interest in the Funds to the Foundation was made within 5 years of Tom's assignment in bankruptcy. Tom’s assignment in bankruptcy occurred on June 20, 2018. The consideration for the assignment of Tom’s interest in the Funds was $10, which was undervalued. The assignment was also not an arm’s length transaction, as the Foundation is for the benefit of Tom’s children.

[50] Section 96 of the Bankruptcy and Solvency Act (“BIA”) provides that the Trustee may apply to a Court for a declaration that a transfer that is undervalued is void as against the Trustee, if made to a party that was not at arm’s length and the transaction occurred within 5 years of bankruptcy and:

a. The debtor was insolvent at the time of the transfer or was rendered insolvent by it, or

b. The debtor intended to defraud, defeat, or delay a creditor.

 

[51] A fraudulent intent can be inferred where certain “badges of fraud” are present. There are two badges of fraud present in Tom’s assignment of his interest in the Funds. Firstly, the consideration was grossly inadequate and secondly, the assignment was for the benefit of the Bankrupt’s children. Bank of Montreal v. Bibi, 2020 ONSC 2948.

[52] I find that the assignment of Tom’s interest in the Funds, made by him on January 31, 2014, was void as against the Trustee in Bankruptcy because it was made within 5 years of his bankruptcy, it was an undervalued non arms length transaction, and was made with the inferred intent to defraud creditors.

[28] Truestar’s position is that whether the Transfers were at arm’s length (“AL”) or non-arm’s length (“NAL”), the requisite criteria are met to support a finding that the Transfers were made at undervalue. The primary position taken by Truestar is that the Transfers were between NAL parties. On that basis, and pursuant to s. 96(1)(b)(i), Truestar need satisfy only two criteria for entitlement to relief. Truestar must demonstrate that the Transfers were:

a) At undervalue within the meaning of the BIA; and

b) Made within a year prior to the first bankruptcy event.

[29] If the Transfers are found to be between AL parties, then two additional criteria must be satisfied:

c) Greenview was insolvent at the time of the Transfers or rendered insolvent by them; and

d) Greenview intended to defraud, defeat, or delay a creditor (s. 96 (1)(a)(i) – (iii) of the BIA).

[30] I turn first to determine whether the Transfers were between AL or NAL parties.

a) Relationship Between Transferor and Transferee

[31] The BIA does not include a definition of NAL for the purpose of s. 96 of the Act. It is therefore necessary to look to the case law for the applicable definition of “non-arm’s length”. The following definition has previously been relied on by this Court:

Section 96 is directed at transfers by insolvent persons for a consideration that is materially or significantly less than the fair market value of the property. In this context, the concept of a non-arm’s length relationship is one in which there is no incentive for the transferor to maximize the consideration for the property being transferred in negotiations with the transferee. It addresses situations in which the economic self-interest of the transferor is, or is likely to be, displaced by other non-economic considerations that result in the consideration for the transfer failing to reflect the fair market value of the transferred property (Re: National Telecommunications Inc., a bankrupt, 2017 ONSC 1475, at para. 43, quoting Wilton-Siegel J. in Juhasz Estate v. Cordeiro, 2015 ONSC 1781, at para. 41).

[32] There is no evidence before the Court to suggest that Greenview and Baer were dealing in any manner other than NAL. The history of Greenview as a corporation, and the various transactions that occurred between Greenview, Baer, her numbered company, Yantha, and Yantha’s business associates make it clear that the Transfers were carried out at NAL.

[33] Therefore, the criteria to be applied in determining whether the Transfers were at undervalue, are the two set out in s. 96(1)(b)(i) of the BIA. 

b) First Criterion – Transfer at Undervalue

[34] “Transfer at undervalue” is defined in s. 2 of the BIA as, “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.”

[...]

[37] There is no evidence to support a finding that the transfers of the Harcourt Properties in 2009 were at fair market value.

[...]

[41] I find that the transfers of the Harcourt Properties from Greenview to Baer, in August 2012, were at undervalue.

[...]

[53] I find that Baer was fully aware in August 2012 that she was representing a purported purchase price of $90,000 for the Barry’s Bay Properties. I find that the contents of the Land Transfer Tax Statement are not, as Baer has suggests, an error on the part of her real estate lawyer.

[54] I say “purported” purchase price because I find that the $90,000 paid in the spring of 2012 was not paid for the purchase of the Barry’s Bay Properties. Even if the $90,000 could be said to be the purchase price, it is half of the fair market value identified in the 2014 MPAC assessment. As such, it would be a transfer at undervalue.

[...]

[55] The second criterion under either of the AL and NAL scenarios is that the transfer occurred within the year prior to the date of the initial bankruptcy event (BIA, ss. 96(1)(a)(i) and (b)(i)). There is no doubt that the August 2012 Transfers were within the year prior to the October 2012 date on which Greenview filed its notice of intention to make a proposal. 

[56] I find that the second criterion under either scenario is satisfied.

[57] The Transfers were at undervalue within the meaning of s. 2 of the BIA. Truestar is entitled to relief pursuant to s. 96(1)(b) of the BIA.

[...]

[66] The Transfers occurred (a) after Greenview went into default with one of its largest creditors (PWBC), and (b) less than three months before Greenview filed its notice of intention to make a proposal in bankruptcy. The Transfers were from Greenview to the spouse of Greenview’s principal. The consideration paid (if paid at all) for the Properties was well below fair market value.

[67] A “fraudulent conveyance” is defined in s. 2 of the FCA:

Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

[68] Sections 3 and 4 of the FCA set out an exception to the application of s. 2 to transactions in issue. For the exception to apply, the purchaser must have paid “good consideration”, made the payment “in good faith”, and lacked knowledge of the intention of the transferor at the time of the transfer. 

[69] For the reasons set out above under Issue Nos. 1 and 2, I find that Baer is not entitled to rely on the exception created by ss. 3 and 4 of the FCA. Baer did not pay “good consideration” and, assuming she paid consideration (and I find that she did not), did not make the payment “in good faith”. Given my findings in that regard, it is not necessary to address whether Baer had or lacked knowledge of Yantha’s intention, at the time of the Transfers, to defeat, hinder, delay, or defraud creditors or others.

[70] The Transfers bear badges of fraud including that:

a) The consideration paid, even assuming the alleged consideration was paid, was grossly inadequate; and

b) There was a close relationship between the debtor/transferor (Greenview) and the recipient (Baer) of the property. (See Indcondo Building Corporation, 2014 ONSC 4018, at para. 52, aff’d 2015 ONCA 752.)

[71] Taking into consideration these badges of fraud, I find that Truestar has raised a prima facie case of fraud in relation to the Transfers. As a result, Baer has the burden of providing a reasonable alternative explanation in support of the Transfers. For the reasons discussed above under Issue Nos. 1 and 2, I find that Baer has failed to do so.

[72] Baer did not offer an alternative reasonable explanation with respect to the transfer of the Barry’s Bay Properties.

[73] The alternative reasonable explanation upon which Baer relies with respect to the Harcourt Properties is that Greenview held the properties from 2009 to 2012 on the basis of a resulting trust in favour of Baer. For the reasons set out immediately below, I reject that explanation.

(a) The text and purpose of s. 96 of the BIA

[19] Section 96 of the BIA permits trustees to seek a court order voiding a transfer by the debtor to another party at “undervalue”, which is an improvident transaction from the debtor’s perspective. Section 96 provides, in part:

96(1) On application by the trustee, a court may declare that a transfer at undervalue is void as against… the trustee — or order that a party to the transfer or any other person who is privy to the transfer[11], or all of those persons, pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor — if

…

(b) the party was not dealing at arm’s length with the debtor and

(i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of the bankruptcy, or

(ii) the transfer occurred during the period that begins on the day that is five years before the date of the initial bankruptcy event and ends on the day before the day on which the period referred to in subparagraph (i) begins and

(A)  the debtor was insolvent at the time of the transfer or was rendered insolvent by it, or

(B) the debtor intended to defraud, defeat or delay a creditor. [Emphasis added.]

[20] Textually speaking, the contrast between paras. (A) and (B) makes it clear that there are circumstances in which s. 96 will apply even though the “transfer at undervalue” occurs at a time that the debtor, in this case Bondfield or Forma-Con, is not insolvent. This scenario gives rise to a problem about the meaning to be given to “creditor” in para. (B). Section 2 of the Act defines “creditor’ as “mean[ing] a person having a claim provable as a claim under this Act”. The reasonable interpretation is that there must be a person to whom the debtor owes money at the moment the fraudulent transaction occurs who would be a creditor with a provable claim if the debtor were immediately insolvent.[12] There is an inescapable contingency to the test. There is also a prospectivity, which comes from the contrast between para. (A) (“was insolvent”) and para. (B), which lacks that language and therefore implies that the debtor is not yet insolvent.

[21] Next, I would interpret the words “a creditor” in para. (B) as denoting any such creditor, not a target creditor or one necessarily known to the fraudulent debtor. It is reasonable to infer that any large enterprise in financial difficulty will have many such creditors, many of whom would not be actively known by the fraudster.

[22] I understand s. 96 to be remedial in nature.[13] The Supreme Court has said with respect to provincial legislation governing fraudulent conveyances and preferences: “All the provincial fraud provisions are clearly remedial in nature, and their purpose is to ensure that creditors may set aside a broad range of transactions involving a broad range of property interests, where such transactions were effected for the purpose of defeating the legitimate claims of creditors.”[14] This remedial purpose led the court to conclude that the legislation “should be given the fair, large and liberal construction and interpretation that best ensures the attainment of their objects”.[15] In my view this approach applies equally to the interpretation of s. 96 of the BIA.

[23] Section 96 was included in the 2009 amendments to the BIA. The section “combines and simplifies the principles that were established pursuant to sections 91 and 100 in the pre-2009 amendments addressing settlements and reviewable transactions, respectively”, as Robyn Gurofsky explains.[16] In her view: “Section 96, like section 95, is intended to create a framework for challenging transactions that have the effect of diminishing the value of the bankrupt’s estate and limiting the ability of creditors to recover all or a portion of their debt from the estate.”[17]

[24] Michael Myers explains the genesis of s. 96: “The law has long recognized the need to protect creditors from insolvent debtors who give away assets to third parties instead of using those assets to repay their debts.”[18] This is an historic concern: “[L]egislation prohibiting debtors from fraudulently dissipating their assets when heavily indebted was first enacted in England during the reign of Queen Elizabeth I in the 1500s and has been embodied into the Fraudulent Conveyances Act of Ontario since the late 1800s.”[19] Gurofsky and Myers both point out that the idea was to prevent the dissipation of assets, especially to related recipients. They both cite Lord Hatherley L.C.’s statement from Freeman v. Pope that “persons must be just before they are generous and that debts must be paid before gifts can be made.”[20] The policy of the BIA goes beyond this modest origin.

(b) The governing principles and their application

[25] In Urbancorp Toronto Management Inc. (Re), van Rensburg J.A. noted that “s. 96 is a remedy to reverse an improvident transfer that strips value from the debtor's estate, where its conditions are met.”[21] She added: “The interpretation of the section must be considered in relation to the remedy that is sought.” This echoed her earlier comments that even though s. 96 is a “tool to address ‘asset stripping’ by a debtor”, a “bankruptcy trustee or CCAA monitor that seeks to impugn a transfer under that provision must nevertheless meet the requirements of the… specific words used” in the section.[22]

[26] In order to require John Aquino and the other beneficiaries of the false invoicing scheme to repay the money they took under s. 96(1)(b)(ii)(B) of the BIA, the monitor and the trustee had to prove two elements: first, John Aquino and the other participants were not dealing with Bondfield and Forma-Con at arm’s length; and second, at the time they took the money (during the statutory review period), they “intended to defraud, defeat or delay a creditor” of Bondfield or Forma-Con. The first element is amply established by the evidence. This case turns on the second element.

[27] The obvious gap in the second element concerns the reach of the fraudsters’ intention. No doubt John Aquino and the other participants intended to defraud Bondfield and Forma-Con, but this does not immediately lead to the conclusion that they also intended at that time to defraud the creditors of Bondfield and Forma-Con. The application judge bridged the gap by imputing John Aquino’s fraudulent intention to the debtors, Bondfield and Forma-Con, and on that basis found that it could be said that “the debtor intended to defraud, defeat or delay a creditor.”

[28] Several aspects of the legal analysis are no longer in active dispute. John Aquino and his associates in the false invoicing scheme do not seriously contest their non-arm’s length status, that the transfers at issue were at undervalue, or their active intent to defraud the debtors, Bondfield and Forma-Con. Nor is there any doubt, as the application judge noted, that the transactions bristled with “badges of fraud”, including the value of the transactions being nil, the non-arm’s length status of the participants, the secrecy, and the unusual haste with which the transactions were completed.[23]

[29] John Aquino and his associates nonetheless dispute liability under s. 96 on two grounds. The first is that their fraudulent acts were not carried out at a time when Bondfield and Forma-Con were financially precarious. The second is that the fraudulent intentions of John Aquino cannot be imputed to Bondfield and Forma-Con. These are the two deep issues to be addressed in this appeal.

(i) The timing of the fraudulent transfers

[30] Recall the bold assertion made by John Aquino and his associates that at the time they took the money, both Bondfield and Forma-Con were sufficiently financially healthy to sustain the losses, which establishes that they did not intend to “defraud, defeat or delay” any actual creditors. The focus is on the fraudster’s intent to defraud a creditor of these companies.

[31] The court must not indulge the temptation to engage in hindsight bias. In Montor Business Corp. (Trustee of) v. Goldfinger, Brown J. (as he then was) stated the principle on which the appellants rely:

When inquiring into the intention of a debtor for the purposes of BIA s. 96(1)(a)(iii) – and the provincial preferences statutes for that matter – a court must ascertain the intention at the time of the transfer or transaction in light of the information known at that time. A court must resist the temptation to inject back into the circumstances surrounding the impugned transaction knowledge about how events unfolded after that time. The focus must remain on the belief and intention of the debtor at the time, as well as the reasonableness of that belief in light of the circumstances then existing.[24]

[32] Brown J. added a caution about the parties’ beliefs as to the value of certain properties in that case: “In hindsight one might question the reasonableness of [their] belief, but the evidence given… about the parties’ thinking at the time indicated a genuine belief in the value of the properties.”[25] This he found to be evidence on which he placed “significant weight”.

[...]

c) The common law doctrine of corporate attribution in the bankruptcy context

[66] Corporations are not natural persons. In view of separate corporate personality, it is no small thing to impute to a corporation the intention of its “directing mind”. On the other hand, there is the spectre that corporations might commit criminal acts and civil delicts with impunity because these engage mental elements relevant to intentions. The corporate attribution doctrine creates a bridge between the corporation and the natural person whose “directing mind” caused the corporation to act as it did. The doctrine attributes the intent of the corporation’s directing mind to the corporation itself, whose conduct is then evaluated against the legal standard that applies to the implicated criminal or civil area of law.

[67] The Supreme Court’s current substantive teaching on the doctrine of corporate attribution is found in Deloitte & Touche v. Livent Inc. (Receiver of),[75] which contextualizes Canadian Dredge. In Livent, the court restated the Canadian Dredge test:

To attribute the fraudulent acts of an employee to its corporate employer, two conditions must be met: (1) the wrongdoer must be the directing mind of the corporation; and (2) the wrongful actions of the directing mind must have been done within the scope of his or her authority; that is, his or her actions must be performed within the sector of corporate operation assigned to him. For the purposes of this analysis, an individual will cease to be a directing mind unless the action (1) was not totally in fraud of the corporation; and (2) was by design or result partly for the benefit of the corporation.[76]

[68] In the result, the court did not allow the doctrine to be used by the auditor Deloitte to defend against Livent’s claim for negligence based on the fraudulent activities of its directing minds.

[69] The Supreme Court in Dejong clarified that Livent invited a flexible application of the Canadian Dredge test, but only to make clear that courts retain discretion not to apply the test in circumstances where attributing the actions of a directing mind to a corporation would not be in the public interest. Courts must take seriously the elements of the corporate attribution test in Canadian Dredge.

(d) The corporate attribution doctrine and the BIA

[70] Thus far, the corporate attribution doctrine has been applied in the fields of criminal and civil liability. Courts have yet to consider the doctrine in the bankruptcy and insolvency context under s. 96 of the BIA, making this a case of first impression.

[71] I would extract three principles from Livent and Canadian Dredge to guide the application of this doctrine in this setting. First, the court is sensitive to the context established by the field of law in which an imputation of intent to a corporation is sought to be made.

[72] Second, the court recognizes that the attribution exercise is grounded in public policy.[77] I would generalize the point made by the Livent court about Canadian Dredge by paraphrasing: In the legal field of inquiry – civil, criminal, or bankruptcy – the underlying question is “who should bear the responsibility for the [impugned] actions of the corporation’s directing mind?”[78] The policy factors that weigh in favour of imputing to a corporation the wrongdoing intent of its directing mind flow from the “social purpose” of holding the corporation responsible. In Livent, the court stated: “[A]s Estey J. himself recognized [in Canadian Dredge], the doctrine is only one of ‘judicial necessity’ and where its application ‘would not provide protection of any interest in the community’ or ‘would not advantage society by advancing law and order’, the rationale for its application ‘fades away’”.[79]

[73] Third, these principles “provide a sufficient basis to find that the actions of a directing mind be attributed to a corporation, not a necessary one”.[80] Accordingly, “[a]s a principle that is grounded in policy, and which only serves as a means to hold a corporation criminally responsible or to deny civil liability, courts retain the discretion to refrain from applying it where, in the circumstances of the case, it would not be in the public interest to do so.”[81]

[74] While this court must take the elements of the corporate attribution doctrine seriously, the genius of the common law is in its robust circumstantial adaptability.

[75] The circumstances in which the corporate attribution doctrine has traditionally been applied – the criminal and civil contexts – are quite different from the bankruptcy context. In the criminal context, the issue is whether it would be just to visit criminal liability on a corporation. As Canadian Dredge instructs, if the corporation benefited from the directing mind’s criminal activity, imposing criminal liability might be justified. But if the criminal activities do not, by design or in result, benefit the corporation, then it is not criminally liable.

[76] The rule in the civil context seeks to determine whether it is just to visit civil liability on a corporation. Where a corporation benefits from the improper activities of the directing mind, that intent might be attributed to the corporation. But if it does not get a benefit, there is no attribution and no liability.

[77] The application of these principles is not clear in the bankruptcy arena, where the policy currents flow rather differently. In particular, attributing the intent of a company’s directing mind to the company itself can hardly be said to unjustly prejudice the company in the bankruptcy context, when the company is no longer anything more than a bundle of assets to be liquidated with the proceeds distributed to creditors. An approach that would favour the interests of fraudsters over those of creditors seems counterintuitive and should not be quickly adopted.

[78] In light of these considerations, I would reframe the test for imputing the intent of a directing mind to a corporation in the bankruptcy context this way: The underlying question here is who should bear responsibility for the fraudulent acts of a company’s directing mind that are done within the scope of his or her authority – the fraudsters or the creditors?

[79] Permitting the fraudsters to get a benefit at the expense of creditors would be perverse. The way to avoid that perverse outcome is to attach the fraudulent intentions of John Aquino to Bondfield and Forma-Com in order to achieve the social purpose of providing proper redress to creditors, which is the core aim of s. 96 of the BIA. The application judge did not err in finding that the “intention of the debtor” under s. 96 can include “the intention of individuals in control of the corporation, regardless of whether those individuals had any intent to defraud the corporation itself.”[82]

[43] On August 22, 2008, two days following his termination and having been advised of the EDC claim against him and others, Mr. Pantziris transferred his one-half interest in the Residence to his spouse for “$2 for natural love and affection.”

[44] For the reasons that follow, on a balance of probabilities I find that the transfer of Mr. Pantziris’ interest in the Residence was a transfer at undervalue and that the transfer was made with an intention to defraud, defeat, or delay his creditors. The transfer is therefore void as against the Trustee. Because I find that Mr. Pantziris intended to defraud or defeat his creditors, the transfer was also a fraudulent conveyance for the purposes of the FCA.

[45] Pursuant to the BIA, s. 96(1)(b)(ii)(B), an undervalue transfer will be void against the Trustee if it is made to a party who is not at arm’s length; was made within a period five years before the initial bankruptcy event; and the debtor intended to defraud, defeat, or delay creditors.

[46] Based on the record, a one-half interest in the Residence, being located in the City of Toronto, had a value in excess of the $2.00 for natural love and affection that Julie Pantziris paid Mr. Pantziris as consideration. The Certificate of Appraisal included in the record shows that the Residence had a value of $2,475,000 and was encumbered by a mortgage in the principal amount of $900,000.

[47] It is not disputed that Mr. Pantziris and Julie Pantziris, being spouses of one another, do not deal at arm’s length. Persons who are related to one another are deemed not to deal with each other at arm’s length while so related: BIA, s. 4(5). It is also not disputed that the transfer of Mr. Pantziris’ interest in the Residence on August 22, 2008 occurred within the five-year period preceding the initial bankruptcy event that occurred on April 26, 2003.

[48] Mr. Pantziris and Julie Pantziris assert that the transfer for $2.00 for natural love and affection is not a transfer at undervalue for the purposes of the BIA because Julie Pantziris paid the mortgage payments, property taxes, and all other expenses apart from the utilities, maintenance, and minor upkeep of the Residence, which were paid by Mr. Pantziris. Accordingly, they assert that Julie Pantziris owned a greater than fifty percent interest in the Residence prior to the transfer.

[49] There is no documentary evidence before the court to show that Julie Pantziris’ contributions to the Residence were equal to or greater than the value of Mr. Pantziris’ one-half interest in the equity of the Residence at the time of the transfer. I am, therefore, satisfied that the transfer was a transfer at undervalue.

[50] To determine whether the transfer is void as against the Trustee, I must determine whether the transfer was made with the intention to defraud, defeat, or delay creditors. This determination is relevant to finding a fraudulent conveyance and to voiding a transfer as against the Trustee. Mr. Pantziris and Julie Pantziris assert that they had valid reasons for the transfer of his one-half interest in the Residence to her and had no intention to defraud, defeat, or delay creditors.

[51] Under each of the BIA and the FCA, the onus is on the Trustee to show that the intent of the parties to the transfer was to defraud, defeat, or delay a creditor. The Trustee is not required to prove that the sole or even the primary purpose of the transfer was to defeat creditors, only that this intention was among the intentions of those participating in the transfer: NTI at para. 52. Courts have consistently held that proof of actual intent is not required to find a fraudulent conveyance or transfer at undervalue.

Where conveyances void as against creditors

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns. R.S.O. 1990, c. F.29, s. 2.

Where s. 2 does not apply

3. Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section. R.S.O. 1990, c. F.29, s. 3.

2. The Fraudulent Conveyances Act

[33] The purpose of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 (the “FCA”) is to prevent fraud. This purpose is explained by C.R.B. Dunlop in Creditor-Debtor Law in Canada, 2nd ed (Toronto: Carswell, 1995) at 598:

The purpose of the Statute of Elizabeth and of the Canadian Acts based on it, as interpreted by the courts, is to strike down all conveyances of property made with the intention of delaying, hindering, or defrauding creditors and others except for conveyances made for good consideration and bona fide to persons not having notice of such fraud. The legislation is couched in very general terms and should be interpreted liberally.

[34] Section 2 of the FCA provides as follows:

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and unlawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

[35] For s. 2 of the FCA to apply with respect to voiding a transaction, three elements are required:

a. A conveyance of property;

b. An intent to defeat; and

c. “creditors or others” towards whom that intent is directed.

[36] In Indcondo Building Corp. v. Sloan,2014 ONSC 4018, 121 O.R. (3d) 160, “creditors and others” was interpreted to mean present and future creditors including judgment creditors. The Court must also determine the intention of the conveyance. The intention to defeat creditors need not be the primary intention of the transfer but can be among the intentions of the transferor: at paras. 44-48.

[37] The Court need not find actual intent but can refer to the badges of fraud to make inferences with respect to intent. The badges of fraud are well known and recognized by modern courts as follows:

(1) the donor continued in possession and continued to use the property as his own;

(2) the transaction was secret;

(3) the transfer was made in the face of threatened legal proceedings;

(4) the transfer documents contained false statements as to consideration;

(5) the consideration is grossly inadequate;

(6) there is unusual haste in making the transfer;

(7) some benefit is retained under the settlement by the settlor;

(8) embarking on a hazardous venture; and

(9) a close relationship exists between parties to the conveyance

see Indcondo, at para. 52

[...]

[39] The question to be asked at this point is whether Adroit has offered a plausible theory of honest purpose for having registered the Mortgages within days of the Colorado Judgment. Adroit must rebut the presumption of an intention to defeat other creditors by the registration of its Mortgages: see Mohammed v. Makhlouta, 2020 ONSC 7494. It has not done so for reasons which are set out below.

[...]

[57] There are two exceptions in the FCA as per ss. 3 and 7(2) as set out below:

3. Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section.

7. (2) No lawful mortgage made in good faith, and without fraud or covin, and upon good consideration shall be impeached or impaired by force of this Act, but it has the like force and effect as if this Act had not been passed.

[58] Essentially, these exceptions apply to situations in which a conveyance may have been made with a fraudulent intent but if there is good consideration and the recipient acts in good faith and is not aware of the fraudulent intent, the conveyance may not be set aside. In this Court’s view this case does not come within the enumerated exceptions under the FCA.

[59] In DBDC Spadina Ltd. v. Walton, 2014 ONSC 3052, the Court, citing Feher v. Healey, [2006] O.J. No. 3450, discussed the meaning of “good consideration” under the FCA and determined that “nominal or grossly inadequate consideration is not sufficient and can be an indication or badge of fraud”: at paras. 20-21.

The Law of Fraudulent Conveyance

[19] Sections 2, 3 and 4 of the Fraudulent Conveyances Act, provide:

Where conveyances void as against creditors

2. Every conveyance of real property or personal property ... made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

Where s.2 does not apply

3. Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section.

Where s.2 applies

4. Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon a valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it is protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser. 

[20] These provisions catch virtually any conveyance or transfer made with the intent to defeat, hinder, delay or defraud creditors, based on the substantial effect of the transaction at the time of the conveyance. The intent requirement to void a conveyance is satisfied when the debtor intends for the conveyance to defeat creditors and, where there is such an intent, when the recipient was privy to the fraud by acting as a party to carrying out the fraudulent intent and purpose. But under ss. 3 and 4 of the Fraudulent Conveyances Act, a conveyance is not void under s. 2 where the receiving party lacks notice or knowledge of the transferor’s bad faith intent: Boudreau v. Marler, [2002] OJ No 5699 (SCJ) at paras 13-15, aff’d (2004), 2004 CanLII 19333 (ON CA), 185 OAC 261 (CA) at para 69. 

[21] In cases involving non-arm’s length transactions, it is uncommon to find direct proof of an intent to defeat, hinder or delay creditors. Rather, it is more common to find evidence of suspicious facts or circumstances, or “badges of fraud,” from which the court may infer a fraudulent intent: Conte Estate v. Alessandro, [2002] OJ No. 5080 (SCJ) at para 20, aff’d [2004] OJ No 3275(CA); Shoukralla v. Shoukralla, 2016 ONCA 128 at para 25.

[22] Recently, the Court of Appeal adopted the following explanation of the role that “badges of fraud” have in determining fraudulent intent under s. 2 of the Fraudulent Conveyances Act:

Whether the [fraudulent] intent exists is a question of fact to be determined from all of the circumstances as they existed at the time of the conveyance. Although the primary burden of proving his case on a reasonable balance of probabilities remains with the plaintiff, the existence of one or more of the traditional "badges of fraud" may give rise to an inference of intent to defraud in the absence of an explanation from the defendant. In such circumstances there is an onus on the defendant to adduce evidence showing an absence of fraudulent intent. Where the impugned transaction was, as here, between close relatives under suspicious circumstances, it is prudent for the court to require that the debtor's evidence on bona fides be corroborated by reliable independent evidence.

Urbancorp Toronto Management Inc. (Re), 2019 ONCA 757 at para 52.

[23] The following are “badges of fraud” for the purpose of determining the intention of a debtor: (i) the transferor has few remaining assets after the transfer; (ii) the transfer was made to a non-arm’s length person; (iii) there were actual or potential liabilities facing the transferor, he was insolvent, or he was about to enter upon a risky undertaking; (iv) the consideration for the transaction was grossly inadequate; (v) the transferor remained in possession or occupation of the property for his own use after the transfer; (vi) the deed of transfer contained a self-serving and unusual provision; (vii) the transfer was effected with unusual haste; or, (viii) the transaction was made in the face of an outstanding judgment against the debtor: DBDC Spadina Ltd. v. Walton, 2014 ONSC 3052 at para 67; Montor Business Corp. (Trustee of) v. Goldfinger, 2016 ONCA 406 at para 73, leave to appeal denied [2016] SCCA No 361. These badges of fraud are non-exhaustive, and may or may not apply to a given fact situation: Urbancorp at para 55. Although badges of fraud are indicia of fraudulent intent, their presence does not require an inference of fraud to be drawn. Badges of fraud are considered against the entire record: Urbancorp at para 53.

[24] A transaction’s effect on creditors also may evidence a debtor’s intent. A conveyance without adequate consideration that serves to defeat, hinder or delay creditors may justify an inference that the transfer was made with this intention. The inference may be rebutted by cogent evidence that the transfer was made for an honest purpose: DBDC at para 67.

[25] Notably, where a debtor transfers her only remaining asset with which she may pay her debts, there is a presumption of an intention to defeat creditors: Conte Estate (SCJ) at para 24, citing Petrone v. Jones (1995), 1995 CanLII 7374 (ON SC), 33 CBR (3d) 17 (Ont Gen Div) at 20. 

[26] A significant badge of fraud is a conveyance by a debtor to a close friend or family member: Devry Smith Frank LLP v. Chopra, 2018 ONSC 1303 at para 46, aff’d 2019 ONCA 78; Caligiuri v. Bonner, [2000] OJ No 4478 (SCJ) at para 52, aff’d [2002] OJ No 1533 (CA).

[...]

[29] The above-mentioned provisions of the Fraudulent Conveyances Act and the Assignments and Preferences Act constitute remedial legislation to protect creditors. As a result, this legislation should be given as fair, large and liberal an interpretation as its language will reasonably bear to promote this policy goal and benefit defrauded creditors: Miller v. Debartolo-Taylor, 2015 ONSC 2654 at para 4; Pilot Insurance Co. v. Foulidis, 2005 CanLII 23679 (ONCA) at para 35.

[30] From the evidence presented at trial, I find that Samira intended to convey the Property to Hanifan to defeat creditors, contrary to the Fraudulent Conveyances Act and the Assignments and Preferences Act. I also find that Hanifan knew of Samira’s intention to defraud creditors, was privy to the fraudulent scheme, and participated in the scheme with fraudulent intent to obtain an unjust preference over other creditors through the conveyance. Furthermore, I find that Samira transferred the Property to Hanifan for inadequate consideration.

a. Badges of Fraud

[31] Having regard to the particular circumstances of this case, I find that the December 4, 2014 transfer of the Property from Samira to Hanifan gave rise to the following “badges of fraud”:

(1) By making the transfer, Samira effectively dispossessed herself of a significant remaining asset that could have been used to pay her outstanding debts to creditors;

(2) The transfer was a non-arm’s length transaction between immediate and close family members who lived together within the same household;

(3) Around the time of the transfer, Samira had accumulated significant personal debts and liabilities, and was insolvent or facing imminent insolvency;

(4) The transfer was put into motion around the time that Samira had stopped operating the restaurant in November 2014, which discontinued her only potential source of income; and

(5) Following the transfer, Samira effectively remained in possession of the Property by continuing to occupy and use it with Hanifan.

[32] The presence of one or more of these badges of fraud raises a presumption of fraud: Conte Estate (SCJ) at para 44. Although the primary burden of proving the claim rests with BMO, the badges of fraud raise an inference of fraudulent intent that place an onus on Samira and Hanifan to explain this circumstantial evidence and show an absence of intent to defraud: Devry at para 46; Purcaru v. Seliverstova, 2016 ONCA 610 at para 5.

[2] The genesis of this litigation was the purchase by the defendant, Huszti Investments (Canada) Ltd o/a Eyewatch, of three commercial units in a building in Toronto.

[3] Bogdan Muzychka, the principal of 260, is an officer and director of Benson Custodian Corporation, a private mortgage lender which brokers and finances residential and commercial mortgages. Benson brokered and administered a first mortgage loan in respect of the three units in which Huszti Investments was the borrower and two of Benson’s clients were the lenders. The loan was guaranteed by Leslie Huszti and Veronica Huszti, Leslie Huszti’s mother.

[4] The defendant Nikhil Chhelavda was an employee of Huszti Investments against whom this action has been discontinued. When necessary, I refer to all the defendants except 260 and Mr. Chhevlavda as the Huszti defendants.

[5] In connection with the purchase of the units, Huszti Investments obtained a vendor takeback mortgage which was registered in second position.

[...]

[14] Vestacon subsequently brought this action against the Huszti defendants and 260. Apart from its breach of contract claim against the Huszti defendants for the debt owing on the construction work that went unpaid, Vestacon alleges that Huszti Investments transferred the units to 260 in a fraudulent conveyance, and that 260 knowingly participated in the fraudulent conveyance. The fraudulent conveyance claim is the sole claim made against 260 in this action.

[15] In this motion, 260 seeks to have the action against it dismissed on a summary basis. Vestacon argues that this is not an appropriate case for summary judgment, because, it argues, the issue engages questions of credibility, and the Huszti defendants have not attended examinations for discovery despite examinations having been scheduled, making this motion premature. It also raises concerns about partial summary judgment having the potential to result in inconsistent findings of fact.

[16] Vestacon cross-moves for a certificate of pending litigation (“CPL”), arguing that the test for a CPL is met in the context of a claim for fraudulent conveyance. In response to Vestacon’s motion, 260 argues that, having allowed its statutory lien rights under the CLA to lapse, Vestacon is not entitled to a CPL. Moreover, 260 argues that Vestacon has admitted its interest is monetary only, such that it does not have a triable interest in land justifying a CPL. The parties agree this issue only arises if the summary judgment motion is not successful.

[...]

[31] Vestacon’s claim against the plaintiff is grounded in the Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29. Sections 2 - 4 are relevant:

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

3. Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of conveyance to the person notice of knowledge of the intent set forth in that section.

4. Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon a valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it is protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser.

[32] The parties agree that the intention of Huszti Investments is relevant to establishing a fraudulent conveyance, and that 260 must have had knowledge of Huszti’s alleged fraudulent intention to void the transfer of the units.

[33] Vestacon relies on Urbancorp Toronto Management Inc. (Re), 2019 ONCA 757, at para. 52, where the Court of Appeal found that fraudulent intent under s. 2 of the Fraudulent Conveyances Act is a question of fact to be determined from all the circumstances as they existed at the time of the transfer. The court held that the plaintiff bears the primary burden of proving its case on a balance of probabilities. However, the existence of one or more of the traditional badges of fraud may give rise to an inference of intent to defraud the creditor in the absence of an explanation from the defendant. In such circumstances, a defendant has the onus to adduce evidence showing an absence of fraudulent intent. I note that this case concludes that badges of fraud “can provide an evidentiary shortcut that may help to establish the subjective intention of a transferor” under the Fraudulent Conveyances Act. It does not speak directly to the transferee’s knowledge, although I accept that the presence of badges of fraud, if known to the transferee, may be relevant to the transferee’s knowledge of the transferor’s intent.

[34] Badges of fraud include: (i) the transferor has few remaining assets after the transfer; (ii) the transfer was made to a non-arm’s length person; (iii) there were actual or potential liabilities facing the transferor, he was insolvent, or he was about to enter upon a risky undertaking; (iv) the consideration for the transaction was grossly inadequate; (v) the transferor remained in possession or occupation of the property for his own use after the transfer; (vi) the deed of transfer contained a self-serving and unusual provision; (vii) the transfer was effected with unusual haste; and (viii) the transaction was made in the face of an outstanding judgment against the debtor: Bank of Montreal v. Bibi, 2020 ONSC 2949, at para. 23.

[35] Moreover, a conveyance without adequate consideration that serves to defeat, hinder or delay creditors may justify an inference that the transfer was made with this intention. The inference may be rebutted by cogent evidence that the transfer was made for an honest purpose: Bibi, at para. 24.

[36] Where a debtor transfers her only remaining asset with which she may pay her debts, there is a presumption of an intention to defeat creditors: Bibi, at para. 25.

[37] Where a transaction is for valuable consideration, the plaintiff’s obligation is to prove an intention to defraud creditors that must be based on something beyond mere suspicion: Bank of Montreal v. Smith, 2008 CanLII 28435 (ONSC), at para. 66: Cybernetic Exchange Inc. v. J.C.N. Equities Ltd., 2003 CanLII 17041 (ONSC), at para 220. The fraudulent intent shown must be of both parties: Cybernetic, at para. 218.

[38] A grantee’s knowledge of a grantor’s insolvency or indebtedness does not cause a grantee to cease to be an innocent purchaser for value without notice of the grantor’s fraudulent intent. As the court held in Solomon v. Solomon (1977), 1977 CanLII 1164 (ONSC), 16 O.R. (2d) 769 (H.C.), at p. 779, and quoted with approval in Cybernetic, at para. 221:

It does not necessarily follow, however, that knowledge on the part of the intending purchaser of the vendor’s insolvency imputes to the purchaser knowledge of the vendor’s intent to defraud his creditors, and it is incumbent upon the plaintiff to bring home to the purchaser knowledge of that intent in order to impeach….a conveyance made upon a valuable consideration…There is no law to prevent one who is insolvent from disposing of his property. He may be doing so in good faith and for the purpose of realizing the monies with which to pay his creditors. So that a purchaser for value is not, merely because of his knowledge of the vendor’s insolvency, to be presumed to have knowledge of a fraudulent intent which may not in fact exist.

[39] In this case, the plaintiff alleges there are a number of badges of fraud that raise a genuine issue requiring a trial as to whether the conveyance of the three units from Huszti Investments to 260 was fraudulent. I address each of these in turn.

[40] First, Vestacon alleges that there was a longstanding relationship between the Benson entities and the Huszti entities that was more than a typical business relationship. It relies on the fact that Benson and its related entities had made a series of mortgage loans to various Huszti entities before Benson brokered the first mortgage in respect of the units, and before it advanced a construction mortgage loan in respect of the units. The record reveals that the mortgages had all been made prior to the transactions involving the three units at issue in this litigation. No loans were made by any Benson entity to any Huszti entity following the default of the mortgages on the units in September 2017. In oral argument, counsel suggested that the relationship between 260 and the Huszti defendants was elevated beyond a regular business relationship, and pointed to Mr. Muzychka’s evidence that he said demonstrated that Mr. Muzychka had not done proper due diligence before facilitating and making the loans in respect of the units. However, on a review of the transcript, counsel agreed that Mr. Muzychka was making an after-the-fact assessment that perhaps he should have dug a little deeper into the Huszti defendants’ creditworthiness, and that a fair reading of the transcript did not support an inference that the relationship between the Benson entities and the Huszti entities was elevated beyond a normal business relationship. There is no evidence to support a conclusion that there was anything other than a normal, arm’s-length commercial relationship between the Benson entities and the Huszti entities.

[41] Second, Vestacon alleges that Huszti Investments’ offer to settle its invoices with Vestacon on a payment plan was made on the same day the transfer of the units was put into motion. That may be, but it is not a recognized badge of fraud. It is consistent with Huszti Investments seeking to address its debts, including by realizing on its assets to pay its debts. Moreover, there is no evidence that 260 knew that the settlement proposal was made at the same time as the transfer was put in motion, and no reason for 260 to have found it suspicious if it did know.

[42] Third, Vestacon alleges that the consideration paid by 260 for the units was “undervalue”. The record does not support this conclusion. An appraisal for the properties valued them at $1,880,000. 260 purchased the units for 1,730,000, consisting of a $740,000 contribution of its funds, and a mortgage from the Royal Bank of Canada, personally guaranteed by Mr. Muzychka, for $1,070,000. The purchase price is over 93% of the appraised value, and the deal was done privately, without incurring real estate commissions, and in circumstances where the first mortgagees had issued a Notice of Sale. I note too that the first mortgagees only agreed to forebear on enforcing their Notice of Sale because Benson paid them the arrears in interest on the first mortgage in the amount of $36,528.32.

[43] Fourth, Vestacon argues that the APS included a self-serving provision allowing Huszti Investments to remain in possession of the units. This requires some explanation.

[44] Originally, through a corporate vehicle, Mr. Muzychka entered into an APS with Huszti Investments to purchase the units for $1,750,000. That APS included terms that Huszti Investments could lease-back the units for $7,000 monthly base rent for the first year, and could repurchase the units within a year of closing for $2,100,000. This APS was conditional on financing. The financing was not approved, and the APS became null and void.

[45] Subsequently, the second APS was entered into for $1,730,000. It did not include either a lease-back or a buy-back clause. Huszti Investments was still interested in leasing back the units, but it was unable to come up with first and last month’s rent. Huszti Investments did not remain in possession of the property at any time after closing. Rather, 260 has leased the units to unrelated tenants. Given that the operative time to consider fraudulent intent is at the time of the transfer, the terms of the first APS have no bearing on the intention behind the second APS.0F[1]

[46] Fifth, Vestacon argues that the transaction was conducted with undue haste. It was not. The negotiations that led to the conveyance took place over several months.

[47] Sixth, Vestacon argues that, around the time of the transfer, Huszti Investments had accumulated significant debts and liabilities and was insolvent or facing imminent insolvency. Seventh, it argues that by making the transfer, Huszti Investments effectively dispossessed itself of its last remaining asset that could have been used to pay its outstanding debts to credits.

[48] Vestacon is likely correct that Huszti Investments was insolvent or nearly insolvent around the time of the conveyance. But the first mortgagees had issued a Notice of Sale. If Huszti Investments did not realize on its assets (the units), the first mortgagees were going to proceed to sell them. While imminent insolvency and dispossessing oneself of one’s last asset are recognized badges of fraud, in my view, they create a stronger suspicion of fraud when the conveyance at issue is of an unencumbered asset. In this case, Huszti Investments’ last remaining assets – the units – were encumbered by three separate mortgages. The Statement of Adjustments indicates that, after paying out the mortgagees and discharging the arrears of property taxes, Huszti Investments was left with only about $80,000. In effect, Huszti Investments did use its last remaining asset to pay its creditors. It just paid out its secured creditors, which it was required to do. Vestacon, by failing to avail itself of its statutory lien rights, ranked below the creditors that were paid out on closing. Selling the asset and paying out creditors is not indicative of a fraudulent intention on the part of Huszti Investments, and certainly does not suggest that 260 knew or should have known that Huszti Investments was conveying the units to it for good consideration to defeat creditors.

[49] There is some evidence that 260 may have known that Huszti Investments’ counsel claimed to be owed about $60,000 which, if taken from the proceeds of sale, would have further decreased the amounts available to Huszti Investments to pay whatever other creditors it had. 260 likely knew that Huszti Investments had an outstanding debt to Vestacon. But it was not 260’s job to determine how to prioritize or satisfy Huszti Investments’ unsecured creditors. 260 had no reason to suspect that Huszti Investments would use its net proceeds of sale to fraudulently defeat any creditor, let alone Vestacon in particular. Moreover, there is no claim against Huszti Investments’ lawyer for taking $60,000 of the $80,000 in net proceeds, if in fact it did so, although that is the only potential creditor preference made out on this record that is even possibly questionable.

[50] Finally, Vestacon argues that the second APS contemplated the lack of funds available from the proceeds of sale for Huszti Investments to satisfy the settlement agreement. I have difficulty with concluding this is indicative of a fraudulent conveyance for several reasons.

[51] First, as I have just noted above, to 260’s knowledge, almost all the proceeds of sale went to satisfy Huszti Investments’ secured creditors and property tax arrears. If there were insufficient funds to pay unsecured creditors, that is because there was not enough money to pay them, not because 260 participated in a fraudulent scheme to defraud creditors in general or Vestacon in particular.

[52] Second, to the extent 260 made sure that the closing documentation protected itself from a construction lien claim by, for example, requiring a statutory declaration that the last construction work done in the units was done in August 2017, it was taking prudent steps to ensure it would not become responsible for Huszti Investments’ debts. I note again that Vestacon could have protected itself by taking advantage of its right to a statutory lien under the CLA. It is not 260’s responsibility that Vestacon did not do so.

[53] Moreover, Vestacon relied on an email from Mr. Muzychka to 260’s real estate lawyer which was disclosed inadvertently in 260’s affidavit of documents, and which Vestacon argues supports its contention that 260 knew that the conveyance of the property was designed to defeat Vestacon’s interest. Although the email is, on its face, subject to solicitor and client privilege, Vestacon argues that privilege has been waived, or that the interests of fairness and consistency require privilege to be waived.

[54] 260 relies on the decision of Myers J. in Whitty v. Wells, 2016 ONSC 7716, leave to appeal refused 2017 ONSC 3682. At para. 10 of Whitty, Myers J. concluded that when counsel receives communications that appear privileged, it is “duty bound” to advise opposing counsel to ensure that the disclosure of the privileged communication was an intentional waiver of privilege. Justice Myers held that the privileged document ought to be set aside and not reviewed or used until the issue has been clarified between counsel. In this case, counsel made no such contact with 260’s counsel. Rather, it proceeded to simply use the privileged document and allege waiver of privilege.

[55] Vestacon’s “fairness and consistency” argument amounts to a contention that it thinks the email calls into question some of Mr. Muzychka’s sworn evidence and it is only fair for it to be allowed to raise the email to test Mr. Muzychka’s credibility. I disagree. Among other things, even if I were to admit the email, it would change nothing. It is yet another example of 260 taking steps to protect its interest, like any responsible purchaser would do. To find the inconsistency between the email and the affidavit evidence that Vestacon alleges, I would have to make a series of inferences that are not justified on the record before me.

[56] Vestacon’s evidence does not come anywhere near establishing a fraudulent intent on the part of Huszti Investments, and it is weaker still when it comes to establishing that 260 had knowledge of Vestacon’s fraudulent intent or shared a fraudulent intent with Vestacon.

[57] The record establishes that Huszti Investments was near insolvency, if not already insolvent. It sold its units to 260, which had a legitimate business purpose in acquiring them, both to shore up its relationship with its clients, the first mortgagees, and to protect its own equity as third mortgagee. The sale was commercially reasonable. The proceeds went, as they had to, to pay out the secured creditors which did not include Vestacon since it, of its own accord, failed to lien the units under the CLA.

[58] 260 has established that there is no genuine issue requiring a trial. The claim against it is dismissed.

[46] To be held void under s. 2 of the Fraudulent Conveyances Act, I must consider the dominant motive behind the registration of the Mortgage. I must find that Richard registered the Mortgage with the intention to defeat, hinder or delay his other creditors, either based on direct evidence of his intent or evidence of surrounding circumstances that establish a prima facie intention to defeat, hinder, defraud or delay. 

[47] The court often has to resort to inferences from the circumstances to making the necessary finding of intention to defeat creditors based on what have become known as the “badges of fraud”. The badges of fraud are said to represent evidentiary rules that may enable the court to make a finding of fraudulent intent unless the proponents of the transaction can explain away the suspicious circumstances. See Indcondo, at paras. 50-53.

[48] The following “badges of fraud” exist in this case:

a. Secrecy: Richard engaged a different lawyer to register the Mortgage and did not disclose the registration to the lawyer who acted for him in connection with the purchase agreement (who then, in turn, was not in a position to disclose it to the Purchaser). While the registration could have been “discovered” by a further sub-search of title to the Property after the June 4, 2013 requisition and before closing, there is no evidence from Richard to indicate that he expected it would be discovered or to explain why he did not tell the conveyancing lawyer about it. He simply states that he “…assumed the lawyers would work out the issues with Michel” after the Mortgage had been registered and that his involvement was at an end and that he did not believe that there would be any further issues. This explanation is nonsensical and illogical. 

b. Timing or haste: Richard registered the Mortgage after the purchase agreement had already been signed but before the closing (only days before the original closing date and only two weeks before the extended closing date), in respect of loans that, according to Richard’s and Antoine’s evidence, had been accumulating for over almost six years (or longer). Richard’s instructions for the registration of the Mortgage are dated June 11, 2013, and the lawyer’s notes indicate that he was not formally retained by Richard to register the Mortgage until the day before it was registered, on June 13, 2013.

c. The close relationship between Richard and Michel: They are brothers. The Applicant argues that a suspicious transfer between near relatives, in itself, is enough to give rise to a prima facie presumption that calls for an explanation. See Rinaldo v. Rosenfeld, [1999] O.J. No. 4665 (S.C.), at paras. 49 and 50.

d. Inconsistent explanations: The written instructions signed by Richard for the registration of the Mortgage are not consistent with his sworn evidence to this court as to the circumstances under which the Mortgage was registered, in that they refer to a General Security Agreement and equitable Mortgage dating back to 2001, six years before the Property was purchased by Richard.

e. No new consideration: Even accepting everything that Richard has provided about the details of the loan advances from Michel, there is no evidence of any loan advances from Michel to Richard or AHCS after 2009. It was expressly noted by the lawyer who registered the Mortgage that it was not supported by any fresh advance of funds or consideration, but was rather predicated on an existing “equitable mortgage”, as of yet unregistered, supported by past consideration. I have found that the equitable mortgage did not exist. 

f. Strategy to compromise execution creditors: The Mortgage was registered in the face of executions (reflecting judgments against Richard) that were identified as a threat to Richard’s ability to close the sale of the Property, since he could not afford to pay them and there would be insufficient sale proceeds to satisfy them in full. An (albeit misguided) suggestion had been made by Richard’s lawyer that the threat that these executions posed might be addressed if a third party mortgagee could “step in and execute their right to sell the property.”

[49] I accept the argument made by the Respondent estate that badges of fraud must be applied carefully. However, I do not accept the argument that they must be established based on a higher degree of probability than the normal civil standard of proof, even if not required to be established on the higher criminal standard of proof. The estate relies on Beynon v. Beynon, 2001 CanLII 28147 (ON SC), [2001] O.J. No. 3653 (S.C.), at paras. 49 and 50, for this proposition, which was later rejected by Perell J. in Indcondo at para. 59, having regard to the later jurisprudence coming out of the Supreme Court of Canada and the conclusion that, even in civil cases involving more serious consequences by the nature of the allegations made, “the seriousness of the allegations does not alter the standard of proof in civil cases,” which is always: proof on a balance of probabilities. 

[50] Having carefully considered and applied the badges of fraud in all of the circumstances of this case, I find a presumption or inference of fraud has been raised in relation to the Mortgage that was registered on June 14, 2013.

[51] The existence of one or more of the recognized badges of fraud may not be determinative but, once their existence is established, an inference of fraud is raised and the evidentiary burden shifts to the Respondents to explain why the fraudulent intent should not be inferred. See Indcondo, at para. 53. The explanations offered by the Respondents to the identified badges of fraud are unsatisfactory:

a. Secrecy: Aside from the “discoverability” point (that I have addressed above), the Respondents also argue that the equitable mortgage was “disclosed” by Richard’s conveyancing lawyer’s June 5, 2013 response to the requisition letter. However, I have found that an equitable mortgage of the nature asserted has not been proven and so its “disclosure” in a letter talking about how to avoid having to pay out the executions registered by Richard’s other unsecured judgment creditors does not explain the secrecy around the registration of the Mortgage itself.

b. Timing or haste: The explanation for the timing of the registration of the Mortgage is that Michel demanded it when he found out that Richard was selling the Property. That is an explanation of the timing but it does not rebut the presumption that it was intended to give some priority or benefit to Michel that might defeat, hinder or delay Richard’s other creditors, such as the other unsecured execution creditors who, prior to the registration of the Mortgage, would have stood pari passu with Michel as unsecured creditors or Richard. 

c. Near relationship: The Respondents suggest that even though Richard and Michel were brothers, they were not close, and that Michel was not trying to help Richard and he eventually cut Richard out of his will because their relationship was never repaired. However, both Richard and Antoine deposed to the fact that Michel had helped Richard many times in the preceding years, sometimes of his own volition. That was the type of brother he was. The demise in their relationship was said by both Richard and Antoine to be tied to Richard’s failure to grant Michel a mortgage security interest in the Property. Michel’s disinheritance of Richard after the Property was sold is equally, if not more, consistent with Michel believing that he did not receive a conveyance of an enforceable security interest in the Property before it was sold to the Applicant, leading him to instead settle his debts with Richard by offsetting them against any inheritance that he might have otherwise received when Michel died.

d. Inconsistent explanations: I am not satisfied that the entirely inconsistent accounts of the origin of the alleged equitable mortgage, as between what is documented in the mortgage registration instructions signed by Richard in June, 2013 and what Richard says in his affidavit on this application, can be explained away and ignored on the basis that the lawyer misunderstood the facts when drafting the instructions and the client (Richard) did not read or understand the document before he signed those instructions.

e. No new consideration: The Respondents say that new consideration was not required in June 2013 because the registered Mortgage was simply a reflection of an existing equitable mortgage. However, I have found that they have not proven the equitable mortgage, so it cannot solve the concern about a lack of consideration for the priority that Michel received by the conveyance of the Mortgage when it was registered on June 14, 2013.

f. Facilitation of strategy to compromise execution creditors: The Respondents argue that this strategy (of having the third party mortgagee step in to sell the Property) was not implemented and would not have been successful. While that is so, that does not mean that the registration of the Mortgage was not intended to advance that strategy, which the documents disclose to have been under consideration at the time.

[52] A presumption of an intention to defeat, hinder, delay or defraud Richard’s unsecured creditors at the time of the registration of the Mortgage has been raised and has not been rebutted. The Respondents have not met their “burden of explanation”, either specifically or based on the surrounding circumstances taken as a whole. See FL Receivables Trust 2002-A v. Cobrand Foods Ltd., 2007 ONCA 425, 85 O.R. (3d) 561, at paras. 39 and 40.

[53] The Respondent estate contends that the Applicant must prove an intention on the part of both Richard and Michel to defraud Richard’s creditors, beyond mere suspicion, relying upon Cybernetic Exchange Inc. v. J.C.N. Equities Ltd., [2003] O.T.C. 1035 (S.C.), at paras. 218 and 220. This argument is predicated on the position that there was valuable consideration for the Mortgage because it was simply the formal legal registration of a pre-existing equitable mortgage for which there had been valuable consideration given through prior loan advances. However, I have found that the Respondents have not proven the existence of an equitable mortgage. Without the equitable mortgage, the justification for the enhanced priority through security that Michel received on June 14, 2013 by the registration of the Mortgage falls away.

[54] The Respondent estate acknowledges that a conveyance without consideration that had the effect of defeating, hindering or delaying Richard’s other creditors in and of itself would justify an inference that this effect was intended. It argues that this presumption can be rebutted by cogent evidence that there was no such intention and that the conveyance was made for an honest purpose. See Cybernetic Exchange Inc., at para. 211. The Respondents have not offered any tenable honest purpose for making the conveyance represented by the registration of the Mortgage on June 14, 2013. While both Richard and Antoine depose that the purpose of registering the Mortgage was for Richard to make good on his promise to Michel to secure Michel’s loans, neither Richard nor Michel conducted themselves after it was registered in a manner consistent with them holding an honest belief that Michel had a security interest in the Property. The “honest purpose” proffered is simply not plausible when the surrounding circumstances taken as a whole are considered.

[55] Michel’s estate contends that the conveyance (registration of the Mortgage) was understood and intended by Michel to enable him to stop the sale of the Property, maintain it with all of the associated costs and sell it for a higher price that would generate sufficient sale proceeds to pay off the prior encumbrances with something left to repay Michel’s loan advances. Thereafter, Michel took no steps to stop the sale, nor is there any evidence of him having made any inquiries or taken any steps before or after the sale, or before or after the Mortgage term expired on December 31, 2013, in respect of the Property or with a view to maintaining, marketing or selling it, nor did he demand payment of the Mortgage or take any steps to enforce or foreclose upon it prior to his death over a year later. The suggestion by Antoine that Michel was satisfied that his position was protected by the registration of the Mortgage and that he expected payment from the sale proceeds is entirely incongruous with his behaviour, and Richard’s behaviour, thereafter.

[56] Richard proceeded to complete the sale of the Property to the Applicant on the strength of the undertaking that he gave to the Applicant, after the Mortgage was registered, that he would repay and discharge all mortgages. While Richard claims not to have read or understood the undertaking he signed, his further explanation, that the Mortgage was registered to placate Michel and that he assumed that the lawyers would take care of Michel’s interests upon the sale without his involvement, is implausible. Richard knew, or ought to have known, that the sale proceeds would not be sufficient to repay his secured and unsecured creditors whose debts had been registered previously on title. He knew that the Purchaser had not agreed to assume the Mortgage. The reporting letter that he received from his conveyancing lawyer after the closing of the sale of the Property makes no mention of the Mortgage or of taking care of Michel’s interests. Nor does Richard offer any plausible theory for how Michel could be taken care of after the Mortgage was registered that would have allowed the sale of the Property to close, as it did. 

[57] Years later, when Richard filed an assignment in bankruptcy on February 7, 2018, Michel’s estate was not listed as either a secured or unsecured creditor or Richard’s estate in bankruptcy. Michel’s estate did not file a claim in the bankruptcy. 

[58] The Respondents have not proffered any plausible theory of an honest purpose for having registered the Mortgage within weeks of the closing of the sale of the Property to the Applicant and taking no steps in furtherance of it thereafter. A more plausible theory (which need not be proven but need only exist as a plausible theory in contrast to the absence of any credible honest purpose having been established by the Respondents) is that the intention of registering the Mortgage was to facilitate the sale of the Property by retroactively asserting an equitable mortgage in favour of Michel that could take priority over other unsecured creditors, but to discharge that mortgage on closing, as Richard undertook to do. 

[59] The Respondents have not rebutted the presumption of an intention to defeat, hinder or delay Richard’s creditors through the registration of the Mortgage, either by the surrounding circumstances or by any plausible theory of an honest purpose. The Mortgage is thus void and unenforceable as against the Applicant and the Property, unless the Respondent estate can demonstrate that it falls within one of the exemptions under either ss. 3 or 7(2) of the Fraudulent Conveyances Act.

[65] The general approach to ascertaining intention in respect of a transfer or conveyance was summarized by Rouleau J., as he then was, in Conte (Executrix and trustee of) v. Alessandro:[20]

In this type of case it is unusual to find direct proof of intent to defeat, hinder or delay creditors. It is more common to find evidence of suspicious facts or circumstances from which the court infers a fraudulent intent.

These suspicious facts or circumstances are sometimes referred to as the “badges of fraud.” These badges of fraud are evidentiary indicators of fraudulent intent and their presence can form the prima facie case needed to raise a presumption of fraud…

The presence of one or more of the badges of fraud raises the presumption of fraud. Once there is a presumption, the burden of explaining the circumstantial evidence of fraudulent intent falls on the parties to the conveyance. The persuasive burden of proof stays with the plaintiff; it is only the evidentiary burden that shifts to the defendants.

[66] The decision of Anderson J. in Re Fancy[21] often is referred to as a classic enumeration of the badges of fraud. In the 1988 decision of Ricchetti v. Mastrogiovanni this Court dealt with Re Fancy as follows:

The law on the subject of fraudulent conveyances is accurately stated by Mr. Justice Anderson in Re Fancy (1984), 1984 CanLII 2031 (ON SC), 51 C.B.R. (N.S.) 29 ....

The plaintiff must prove that the conveyance was made with the intent defined in that section [i.e. section 2 of the Fraudulent Conveyances Act]. 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. Although the primary burden of proving his case on a reasonable balance of probabilities remains with the plaintiff, the existence of one or more of the traditional "badges of fraud" may give rise to an inference of intent to defraud in the absence of an explanation from the defendant. In such circumstances there is an onus on the defendant to adduce evidence showing an absence of fraudulent intent. Where the impugned transaction was, as here, between close relatives under suspicious circumstances, it is prudent for the court to require that the debtor's evidence on bona fides be corroborated by reliable independent evidence.

The "badges of fraud" referred to by Mr. Justice Anderson are those et [sic] out in Re Dougmor Realty Holdings Ltd., (1966), 1966 CanLII 214 (ON SC), 59 D.L.R. (2d) 432:

(1) Secrecy

(2) Generality of Conveyance

(3) Continuance in possession by debtor

(4) Some benefit retained under the settlement to the settlor.

The above passages set out the test to be applied. The badges of fraud alleged by the plaintiff are established.[22]

[67] The case law[23] has identified the following circumstances as constituting “badges of fraud” for purposes of ascertaining the intention of a debtor: (i) the transferor has few remaining assets after the transfer; (ii) the transfer was made to a non-arm’s length person; (iii) there were actual or potential liabilities facing the transferor, he was insolvent, or he was about to enter upon a risky undertaking; (iv) the consideration for the transaction was grossly inadequate; (v) the transferor remained in possession or occupation of the property for his own use after the transfer; (vi) the deed of transfer contained a self-serving and unusual provision; (vii) the transfer was effected with unusual haste; or, (viii) the transaction was made in the face of an outstanding judgment against the debtor. As well, the effect of a transaction on creditors may provide evidence of the debtor’s intent. For example, if the effect of a conveyance without adequate consideration is to defeat, hinder or delay creditors, then that effect may well justify an inference that, in making the conveyance, there was such an intention. The inference can be rebutted by cogent evidence that there was no such intention, but that the conveyance was made for an honest purpose.[24]