Civil Section Minutes 2007

Reform of Fraudulent Conveyances and Fraudulent Preferences Law

(Transfers at Undervalue and Preferential Transfers)

Presenter: Professor Tamara M. Buckwold, Faculty of Law, University of Alberta

In 2006 Professor Buckwold presented a project proposal for reform of the provincial and territorial law of fraudulent conveyances and preferences (following on a feasibility study presented in 2004). The project strategy was endorsed and her Report provides a summary of progress to date and work to be done.

The first step, Part 1 of a study paper that includes an introduction to the subject of fraudulent conveyances and fraudulent preferences and a discussion of fraudulent conveyances, is near completion. Part 2 of the study paper addresses fraudulent preferences and should be completed by the end of 2007.

By way of introduction to the subject of reform, Ms. Buckwold provided a number of scenarios involving fraudulent conveyances and fraudulent preferences. The unifying theme of fraudulent conveyance and fraudulent preferences law is that both address circumstances in which a debtor deals with property in a manner that obstructs or defeats the right of one or more creditors to satisfaction through resort to the debtor’s assets. A fraudulent conveyance is a transfer of property intended by a debtor to place property that would otherwise be available to creditors beyond their reach. A fraudulent preference involves a transfer of property by a debtor to a creditor with the intention of satisfying that creditor at the expense of other creditors.

In general, the primary substantive basis upon which creditors may currently challenge a transaction under either branch of the law is the debtor’s intention to defeat creditors so that the type of transaction that gives rise to a remedy is designated as fraudulent. There is a more modern view that the law should be primarily concerned with the actual effect on creditors of a debtor’s dealing with property, rather than whether the debtor intended to prejudice their rights. This shift in approach results in a change of terminology: with respect to fraudulent conveyances, the term used is “transaction at undervalue” and with respect to fraudulent preferences, the term used is “preferential transfer”.

Professor Buckwold then addressed the three primary components of the study paper respecting transactions at undervalue (i.e. fraudulent conveyances): a Summary of Current Law; Policy Considerations and the Regulation of Transactions at Undervalue; and Issues for Determination

Professor Buckwold set out the specific issues that must be decided in the design of reformed legislation under five general headings:

(i) Transactions within the scope of the Act;

(ii) Standing: Who may claim a remedy under the statute?

(iii) Grounds for a remedy (basis for challenging transaction);

(iv) Defences and protection of third parties; and

(v) Remedies.

Professor Buckwold concluded that a working group should be established, and should proceed on the basis of the study paper and ancillary report to identify the issues of policy and approach that require input from the legal profession and stakeholders and devise an appropriate consultation process (including a consultation document).

Discussion:

Vincent Pelletier (Québec) is looking for someone in Québec to work on this project, noting that it would be very interesting to see what new solutions are possible and whether they can be applied to Québec law. Another individual noted that, though antiquated, practitioners have to grapple with these statutes regularly. Professor Buckwold also noted that transactional certainty is the big competing factor that will have to be addressed by the working group.

RESOLVED:

THAT a Working Group be established to continue the work outlined in the Report, and, in accordance with the discussions of the Conference, to identify the issues of policy and approach that require input from the legal profession and stakeholders, devise an appropriate consultation process, including a consultation document, decide the issues of policy and approach involved in the formulation of legislation, and commence work on the preparation of a Draft Act and commentaries and report progress to the 2008 meeting.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018