'Braydon' — The Requisite Intent For Fraudulent Conveyances

INTRODUCTION

The British Columbia Court of Appeal's decision in Abakhan & Associates Inc. v. Braydon [Braydon]1 is of signal import to the insolvency bar and trustees. Leave to appeal to the Supreme Court of Canada has been denied2 (McLachlin C.J., Abella and Cromwell JJ.).

Braydon defines the requisite intent for a fraudulent conveyance under B.C.'s Fraudulent Conveyance Act [BCFCA].3 The BCFCA is short:

Fraudulent conveyance to avoid debt or duty of others

1 If made to delay, hinder or defraud creditors and others of their just and lawful remedies

a disposition of property, by writing or otherwise, a bond, a proceeding, or an order is void and of no effect against a person or the person's assignee or personal representative whose rights and obligations by collusion, guile, malice or fraud are or might be disturbed, hindered, delayed or defrauded, despite a pretence or other matter to the contrary.

Application of Act

2 This Act does not apply to a disposition of property for good consideration and in good faith lawfully transferred to a person who, at the time of the transfer, has not notice or knowledge of collusion or fraud. [Our emphasis]

Ontario's Fraudulent Conveyance Act (the OFCA)4 is longer than the BCFCA but its operative language regarding intent is very similar with the exception that the BCFCA includes the language "by collusion, guile, malice or fraud" whereas the OFCA does not. The additional BCFCA language is not significant. As the B.C. Court of Appeal stated in Braydon:

[70] However, for many years, and certainly since the repeal of the penal provisions in 1987, the purpose and scheme of the B.C. Fraudulent Conveyance Act has been to provide a civil remedy to creditors. Its purpose is to protect creditors where property dispositions by debtors "... were effected for the purpose of defeating the legitimate claims of creditors" [...]. As a result, the words "by collusion, guile, malice or fraud" no longer perform a meaningful function in the text.5

Both statutes have their roots in the Statute of Elizabeth, 1571 (U.K.), 13 Eliz. I, c. 5, 1571. The operative language of the Statute of Elizabeth was:

... Wth Foeffement Gyftes Grauntes Alienations Conveyaunces Bondes Suit Judgement and Executions have been and are devised & contrived of MaIyce Fraude Convyne Collusion or Guyle, to Thend Purpose and Intent to delaye hinder or defraude Creditors and others of theyr juste and lawfull Actions Suites Debtes Accomptes Damages Penalties Forfaitures Heriott Moruaries and Releffes, ...

While the Statute of Elizabeth was declaratory6 and the BCFCA and OFCA are remedial,7 the distinction is not significant. The current law has been developed over the last four centuries by the courts. As the B.C. Court of Appeal noted in quoting Professor C.R.B. Dunlop:8

... Since 1571, the courts have been active in creating a large and complex body of law which purports to interpret the Statute but which in reality constructs a new right in 'creditors and others' to challenge and avoid fraudulent conveyances.9

The point is that in reality it is this new right, a common law creation, that governs the law of fraudulent conveyances. The statutes serve as context.

BRAYDON'S FACTS

For our purposes, Braydon's facts may be briefly summarized:10

The debtor, Botham Holdings Ltd. ("BHL"), had significant real estate assets which it transferred on October 31, 2005 to Braydon Investments Ltd. ("BIL"), a related corporation incorporated for this purpose. Two months earlier BHL had become partner in a general partnership formed to undertake an auto leasing business. For income tax purposes, BHL needed to remove the real estate assets. "As expressed in the appellant's factum: '... the plan was to empty an old company of its assets unrelated to auto leasing, and use the old company for the partnership rather than incorporate a new one, because using the old company allowed for the tax benefit'".11 The assets were transferred to BIL on a tax efficient basis by way of a transaction, in tax parlance, called a "single-winged butterfly". The principal of BHL and BIL had no "dishonest intent" or any intent to "defraud creditors".12 The principal of BHL also admitted that the purpose and intent and effect of the transaction was to make sure that the assets of BHL were removed from BHL so that creditors of the general partnership could not have access to them.13 No creditor was "pressing for payment" at the time of the transaction. The general partnership failed. The trustee in bankruptcy commenced an...