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FRAUDULENT CONVEYANCES - Conveyances that are void

Friday, November 01, 2019 @ 6:21 AM  


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Appeal by the Monitor from a decision dismissing the Monitor’s motion for an order disallowing a claim filed by Speedy Electrical. KRI was part of Urbancorp group of companies owned by Saskin which were involved in proceedings under the Companies’ Creditors Arrangement Act. Speedy filed a claim against KRI pursuant to a secured guarantee given by KRI to Speedy for debts owed by Edge Triangle and Saskin. Speedy, which performed electrical services for Urbancorp, made a personal loan to Saskin for one million dollars with interest at the rate of 12.5 per cent, evidenced by a promissory note. In addition, Speedy completed electrical work for Edge Triangle, an Urbancorp entity, ultimately registering a construction lien against the project. KRI, Speedy and Saskin subsequently entered into a debt extension agreement. The agreement provided that in consideration of the extension of the promissory note, the discharge of the lien, and payment by Speedy to KRI of two dollars, KRI agreed to guarantee the two outstanding debts, secured by a collateral mortgage in Speedy’s favour over KRI condominium units and parking spaces. The Monitor argued that Speedy’s claim of $2,323,638 should be disallowed because the secured guarantee was a transfer at undervalue and a fraudulent conveyance. The motion judge found there was no evidence that Speedy and KRI were acting in concert, and that contemporaneous written communications indicated they were adverse in interest. He rejected the Monitor’s argument that Saskin acted in bad faith by offering the guarantee to remove what the Monitor argued was an untimely and therefore invalid lien. The motion judge ordered costs of $25,000 to be paid to Speedy by the Monitor on behalf of the debtor, and not in its personal capacity. The Monitor challenged the motion judge’s finding that the secured guarantee was between arm’s length parties and the motion judge’s finding that the transfer was for facilitating a financing for the Urbancorp group and not with the intention to defraud, defeat or delay KRI’s creditors, and the costs award.

HELD: Appeal dismissed. The motion judge properly considered the relationship between KRI and Speedy, rather than the relationship between KRI, Edge and Saskin, in determining whether the impugned transfer was to a non-arm’s length party. While the debt extension agreement was a transaction between KRI, Speedy, Edge and 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. Although Edge and Saskin were parties to, and beneficiaries of, the transaction that provided for the secured guarantee, the transfer sought to be impugned by the Monitor was KRI’s secured guarantee in favour of Speedy. The issue, under a proper construction of s. 96(1)(b) of the Bankruptcy and Insolvency Act, was whether the transferee, Speedy, was dealing at arm’s length with KRI, the transferor, in relation to the impugned transfer, which was the secured guarantee. The motion judge’s finding that the transfer was for facilitating a financing for the Urbancorp group and not with the intention to defraud, defeat or delay KRI’s creditors was a finding of fact, supported by the evidence, that was entitled to deference and revealed no reversible error. This finding was determinative of the appellant’s claim. The motion judge’s costs award against the Monitor, on behalf of the debtor was a proper exercise of his discretion and revealed no reversible error. The quantum of costs reflected the legal work required.

Urbancorp Toronto Management Inc. (Re), [2019] O.J. No. 4874, Ontario Court of Appeal, K.M. van Rensburg, C.W. Hourigan and G. Huscroft JJ.A., September 27, 2019. Digest No. TLD-October282019014