A transfer of an interest in property done with intent to defeat creditors or others of their just and lawful entitlements.
Primarily a creature of statute, the process of clawing back conveyances of property made to defraud a creditor had as humble beginnings the Statute of Elizabeth (the Fraudulent Conveyances Act).
Now most jurisdictions have these types of laws in their statute books. For example, Ontario's Fraudulent Conveyances Act contains this codification at ¶2 and 3:
"2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.
"3. Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section."
British Columbia's statute is a model of simplicity comprising of only two paragraphs as follows:
"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.
"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 no notice or knowledge of collusion or fraud."
However, BC also has a Fraudulent Preference Act which provides, at ¶2:
"If a person in insolvent circumstances, unable to pay the person's debts in full, or knowing that the person is on the eve of insolvency, voluntarily or by collusion with a creditor, agrees to a judgment against the person, with or without time to pay, or gives a power of attorney to do so, with intent to defeat or delay the person's creditors wholly or in part, or to give one or more of the person's creditors a preference over other creditors, or over some of them, the judgment or power is void against the creditors of the person."
In Toronto-Dominion Bank v Miller it was held that gifts are just as retractable as are conyenaces for consideration, and that:
"However strong the presumption may be that if the necessary effect of a voluntary transfer is to delay or defeat creditors an intention to do so should be inferred, it is not conclusive. In an appropriate case the presumption may have to yield in favour of cogent and affirmative evidence establishing an honest purpose in the making of the transfer, a purpose in no way designed to prejudice creditors."
References and Further Reading:
- Fraudulent Conveyances Act, RSO 1990 Chapter F29, published at canlii.com/on/laws/sta/f-29/index.html
- Fraudulent Conveyance Act RSBC 1996 Chapter 163 and Fraudulent Preference Act at RSBC 1996 Chapter 164
- Toronto-Dominion Bank v Miller (1990) 3 CBR 3d 285.