By Amrita Mann
Conveyance is a generic term for any written document that transfers (conveys) an asset as a part of a business transaction. It includes transfer of property, real or personal, a provision of service, a charge on a property, a payment, and a judicial proceeding taken or suffered by an insolvent person.
The Fraudulent Conveyance Act, the Assignments and Preferences Act, the Bankruptcy and Insolvency Act and the Ontario Business Corporations Act govern the transfer of assets, and specify when such a transfer is considered void.
Here are the top 10 things you need to know about attacking fraudulent conveyances:
- A “conveyance” includes the transfer of property, real or personal, a provision of service, a charge on a property, a payment and a judicial proceeding taken or suffered by an insolvent person.
- Conveyances made with the intent to hinder creditors or others with claims are void under the Fraudulent Conveyances Act.
- Any payment by a person who is insolvent or near insolvent, with the intent of giving a preference to one creditor over the others, is void under the Assignments and Preferences Act.
- Where a conveyance is made on the eve of bankruptcy, the Bankruptcy and Insolvency Act creates a rebuttable presumption that the conveyance was made with the intent of giving preference to one creditor over the others.
- Any transfers made between arm’s length (non- related) parties, within 3 months of bankruptcy, or non-arm’s length (related) parties, within 12 months of bankruptcy are reviewable.
- Under the Ontario Business Corporations Act (OBCA), a corporation is restricted from paying dividends or redeeming shares where there are reasonable grounds to believe that either the solvency test or capital impairments test would be breached. The corporation fails the solvency test of this law when the realizable value of the corporation’s assets would be less than the aggregate of its liabilities and its stated capital of all classes. The capital impairment test is breached when there are reasonable grounds to believe that the realizable value of the corporation’s assets would be less than the aggregate of its liabilities and its stated capital of all classes.
- A director who votes for or consents to an improper dividend or share redemption is liable to the corporation for the amount paid out.
- A director can apply to the Court to order a shareholder to repay an improper dividend or other benefit received from a corporation.
- Directors or officers have the right to be indemnified for the defence of any civil, criminal, administrative, investigative or other proceeding to which they are subject to, in connection with fulfilling their responsibilities to the corporation. However, a director’s or officer’s right to be indemnified can be challenged if it can be shown that the director or officer did not have reasonable grounds for his/her belief that his/her impugned conduct was lawful or that s/he did not act honestly and in good faith.
- A Court may pierce the corporate veil and pursue the directors or officers of the corporation personally, if it can be established that the company is an authorized agent of its controllers or its members, corporate or human.