ONTARIO – Fraudulent Conveyances – A creditor need not have been the debtor’s creditor at the time of the conveyance to bring a claim under the Fraudulent Conveyances Act, RSO 1990, c F.29. If the debtor perceived a risk of claims from future creditors when it conveyed a property with the intention to evade those creditors, future creditors can bring claims under the Act.

Ontario Securities Commission v. Camerlengo Holdings Inc. 2023 ONCA 93
2022 ONSC 7286 (February 10, 2023)
Ontario Court of Appeal (Huscroft, Miller and Nordheimer JJ.A.)

This was an appeal from a Rule 21 motion in which the defendants were successful in having the fraudulent conveyance claims of the Ontario Securities Commission (“OSC”) struck on the basis that the facts pleaded in the claim were not sufficient to establish that the OSC was a creditor who had standing to bring a claim under section 2 of the Fraudulent Conveyances Act (the “Act”). (para. 1)

The OSC’s claim alleged that Fred Camerlengo, the sole director, officer and shareholder of the defendant corporation and his wife, Mirella Camerlengo conveyed Fred’s interest in his family home to Mirella for no consideration when they were concerned about potential exposure to personal liability from his business. The OSC brought a claim alleging the transfer was made with the intention of defeating Fred’s current and future creditors. (para. 4) The OSC was not a creditor at the time of the transfer.

The defendants brought a motion to strike the OSC’s claim to set aside the property transfer and other payments the defendant corporation made to Fred and Mirella as fraudulent conveyances.

The motion judge struck the fraudulent conveyance claims on the basis that the current creditors did not come within the class of persons under section 2 of the Act because they were not “creditors or others” at the time of the transfer of the family home. (paras. 7-9)

The Court of Appeal overturned the motion judge’s decision on the basis that they did not “correctly interpret or apply s. 2 of the FCA”. (para. 11) A creditor who was not a creditor at the time of the transfer can still attack a transfer as fraudulent where the transfer was made with the intention to “defraud creditors generally, whether present or future.” The Court held that it was not necessary when pleading a fraudulent conveyance that “a claimant be able to identify a particular, ascertainable creditor that the debtor sought to defeat at the time of the conveyance”. It is enough, on the case law, to plead facts that support the allegation that at the time of the conveyance the debtor perceived a risk of claims from a general class of future creditors and conveyed the property with the intention of defeating such creditors should they arise.” (para. 11)

The Court of Appeal found that the OSC had pleaded sufficient facts that, if established by evidence, would provide some support for the allegation that the conveyance was made with the intention of defeating a general class of future creditors, including that:

1. The property was conveyed to Fred’s spouse for no consideration after 16 years of joint ownership;
2. The transfer was made 4.5 months after Fred and his business partner incorporated;
3. The transfer was made at the same time, and by the same lawyer, as Fred’s business partner used to transfer his family home to his wife;
4. The transfer was made when Fred and Mirella were concerned about exposure to personal liability from Fred’s business; and
5. Post-transfer, Fred continued to treat the property as his own by not only living there but by causing Mirella to mortgage the property multiple times to the benefit of his corporations, and by paying all costs and expenses related to the property as well as giving personal guarantees for the mortgage obligations. ( 14-15)

The Court of Appeal held that the motion judge erred in striking the claim with respect to the conveyance because the pleaded facts were sufficient to defeat the Rule 21.01(1) motion. (para. 16)