Canada: A Comprehensive Analysis of Transfers at Undervalue Under Section 96 of the Bankruptcy and Insolvency Act – Part I

Last Updated: July 10 2018
Article by Michael Myers

A. Introduction and Overview

This is the first in a series of articles examining the Transfer at Undervalue provisions set out in section 96 of the Bankruptcy and Insolvency Act[1] (which I'll refer to in these articles as the "BIA"). A Transfer at Undervalue in BIA parlance includes both: (i) a pre-bankruptcy gift of property (by the now bankrupt debtor); and (ii) a pre-bankruptcy sale of property (by the now bankrupt debtor) for a price that is conspicuously less than the fair market value of that item; in either case (iii) that was made to an arm's length transferee within one year of the bankruptcy or (iv) that was made to a non-arm's length transferee within five years of the bankruptcy. In these articles, I will call the third party transferee of the Transfer at Undervalue, the "Recipient".

In this author's experience, the Transfer at Undervalue provisions of the BIA are both very powerful and yet, underutilized. Powerful, because the BIA provisions impugning a Transfer at Undervalue give a trustee (or a creditor with a section 38 Order[2]) the ability to ask a court to divest a non-bankrupt Recipient of her or his property (that was recently acquired from the bankrupt under a Transfer at Undervalue) in many scenarios without proving that the bankrupt had any fraudulent intention at the time that the Transfer at Undervalue was made. The elimination of the need to prove fraudulent intent (on the part of the bankrupt transferor) is a significant lowering of the threshold that is found in provincial fraudulent conveyance statutes. It appears to be a significant policy shift away from the intent of the debtor/transferor (which has always been the backbone of the provincial fraudulent conveyance legislation) towards the effect of the impugned transfer (being the diminution of the assets in the bankrupt estate to the prejudice of the creditors of the estate). This is a radical departure from the historic norms of common law jurisdictions, where property ownership has always been jealously protected by Parliament, the legislatures and the courts.

And yet, despite being legislation allowing trustees and creditors to deprive a Recipient of her or his vested property rights, without having to prove fraudulent intent, Transfer at Undervalue litigation is still not commonplace. One can only presume that trustees are slow to initiate Transfer at Undervalue litigation because there are often few, if any, assets available in the estate to fund any litigation. Creditors typically have more resources available to fund Transfer at Undervalue litigation. But trustees with larger estates and creditors' alike appear to be reluctant to bring Transfer at Undervalue proceedings, perhaps because the lower threshold established by section 96 of the BIA is not yet widely appreciated. Few trustees or creditors appear to be alive to the fact that the courts are now empowered to void a Transfer at Undervalue (or order repayment to the estate by a Recipient) even when there was no fraudulent intent on the part of the bankrupt transferor.

Transfer at Undervalue legislation has now been included in the BIA for almost nine years. A body of case law is emerging that demonstrates the court's willingness to reverse many Transfers at Undervalue (especially Transfers at Undervalue to spouses, children and to other non-arm's length Recipients). However, the court's robust enthusiasm to reverse Transfers at Undervalue have stopped short when an economically disadvantaged spouse's share of her or his matrimonial home is the property that was transferred, even though section 96 of the BIA does not differentiate between 'family assets' and 'non-family assets'. In at least one instance, the Court[3] has tempered its willingness to impugn a Transfer at Undervalue of this sort because of what appear to be emotional ruminations (under the guise of fairness to the spouse) rather than strictly legal considerations. And the dearth of reported Appellant Court decisions[4] analyzing Transfers at Undervalue of matrimonial homes between spouses has resulted in Trustees and creditors being unable to predict with any degree of accuracy whether a court will be willing to void a Transfer at Undervalue received by an economically disadvantaged spouse –when the asset Transferred at Undervalue is all of a part of a matrimonial home representing her or his primary asset and means of support[5].

The reluctance of some courts to treat all Transfers at Undervalue the same (irrespective of the kind of property that is transferred) is disconcerting – especially because the BIA prohibits all Transfers at Undervalue without distinguishing between various classes of assets. Judicial imposition of family law considerations into the interpretation of a section 96 Transfer at Undervalue proceeding adds confusion rather than predictability into the mix. And while supporting economically disadvantaged spouses under the guise of family law policy considerations may seem just at first blush, fairness in BIA litigation must necessarily promote the object and scheme of the BIA; which focuses on the protection of the creditors of the estate above all other considerations, especially the interests of the Recipient[6] (of the Transfer at Undervalue).

This brief Overview will be followed with additional articles examining the Transfer at Undervalue provisions of the BIA in more depth; what they mean, how they work, what courts have said about them and when they are effective to return to the bankrupt estate property or funds distributed by the bankrupt prior to her or his bankruptcy in contravention of section 96 of the BIA. Next I will look at the legislative history and evolution of section 96 of the BIA.

[1] Bankruptcy and Insolvency Act, RSC 1985, c B-3

[2] A section 38 Order references section 38 of the BIA; which allows a creditor to obtain an Order of the court to take ownership of litigation from a trustee in circumstances where the trustee fails or refuses to do so

[3] Mercado Capital v. Qureshi, 2017 ONSC 5572

[4] At the time of first publication, the Ontario Court of Appeal has yet to release its decision from the appeal of Mercado Capital v. Qureshi decision cited above

[5] Compare Re Paul W. Lee, 2017 ONSC 388 and Re Rehman, 2015 ONSC 188

[6] Pitblado LLP v Houde, 2015 MBQB 85 @ para 45

Click here to read Part II

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions