last post, we discussed various acts that may be deemed as
offences under the Bankruptcy and Insolvency Act (BIA).
But in addition to these offences, other provisions in the BIA
authorize the attack and setting aside of improper transactions
entered into by the debtor prior to bankruptcy, without the
necessity of proving criminal charges.
The key question is whether the transaction resulted in the
debtor giving away more than they received. For example, if a
debtor, prior to bankruptcy, transferred their interest in their
home to their spouse, with little or no money being paid by the
spouse for the transfer, such a transaction would be ripe for
attack under the BIA.
Any transaction found to be improper can be unwound, with the
party who received the benefit of the transaction being required to
pay the amount of that benefit over to the trustee in
The determination of whether a transaction is improper is made
in the light of several factors, including:
The time period during which the transfer was made
The relationship between the debtor and the other party
The financial situation of the debtor at the time of the
The intent or motive of the debtor in making the transfer
Transactions at arm's length
If the debtor and the other party are unrelated and dealing with
each other at arm's length, then a transaction may be set aside
only if it occurred within one year prior to the date of the
bankruptcy filing. As well, the debtor must have been insolvent at
the time of the transaction or have been rendered insolvent by it.
Finally, there must also have been deliberate intent by the debtor
to defraud, defeat or delay their creditors.
Transactions at non-arm's length
Where the involved parties are not at arm's length - such as
between family and friends - a wider net is cast over transactions
entered into prior to bankruptcy, in two respects. First, the
scenario described above is extended from one year to five years
prior to the date of the bankruptcy filing.
Second, within the one year period immediately prior to
bankruptcy, there is no need to show that the debtor was insolvent,
nor that there was any intent to defraud, defeat or delay.
Those in financial straits, or those dealing with someone who
is, are well-advised to consult with an insolvency and
bankruptcy lawyer for guidance on how to properly protect their
interests and discharge their obligations.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
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