Builders ’ Floor Centre Ltd. Plaintiff/Applicant - v. -, 2012 ABQB 86

Court of Queen ’ s Bench of Alberta Citation: Builders ’ Floor Centre Ltd. v. Thiessen, 2012 ABQB 86 Date: 20120203 Docket: 1003 18830 Registry: Edmonton Between: Builders ’ Floor Centre Ltd. Plaintiff/Applicant - and - John Thiessen, John Thiessen Operating As Autumn Ridge Homes Inc. and Autumn Ridge Homes Inc. Defendants/Respondents _______________________________________________________ Reasons for Decision of R. P.

Wacowich, Master in Chambers _______________________________________________________ [ 1 ] This is an application to set aside a Fraudulent Conveyance and Fraudulent Preference and to obtain an oppression remedy. The application pleads The Fraudulent Conveyances Act, 1571 (13 Eliz. 1) c. 5 (“ Statute of Elizabeth ”) The Fraudulent Preferences Act , RSA 2000, c. F-24, the Civil Enforcement Regulation , Alta. Reg. 276/195,

Part 1. 3 and the Business Corporations Act , RSA 2000, c. B- 9, ss. 122, 239 , 242 , 243 . Facts [ 2 ] This action was commenced by Builders’ Floor Centre Ltd. (Builders’) against John Thiessen (Thiessen), John Thiessen

[ 2 ] This action was commenced by Builders’ Floor Centre Ltd. (Builders’) against John Thiessen (Thiessen), John Thiessen operating as Autumn Ridge Homes Inc., and Autumn Ridge Homes Inc., (Autumn) by way of a statement of claim filed on November 3, 2010. The action alleges a debt arising from goods and services supplied to the defendants at their request for the months of December 31, 2008 to February 26, 2009 for which a sum remains owing.

The goods claimed by the plaintiff were supplied to the defendants for the improvement of a property near Wetaskiwin, Alberta. [ 3 ] On November 6, 2007, Builders’ prepared a flooring installation quote for Autumn at the request of John Thiessen in his capacity as an officer of Autumn. John Thiessen was the director, president and secretary-treasurer of Autumn. He was also a director and shareholder of J & V Holdings

(1999) Ltd., a corporate shareholder in Autumn. On April 4, 2008 and September 17, 2008 pursuant to an agreement between Builders’ and Autumn two deposits totalling $17,500.00 were paid by Autumn towards the flooring installations. In November and December of 2008 Builders’ began to supply and install flooring and window blinds at the property in question.

Up to December 18, 2008 Autumn was the registered owner of the property with a mortgage registered against title for the principal sum of $682,077.00. [ 4 ] On December 18, 2008 Autumn transferred the property for $1.00 to John Thiessen and Verna Thiessen, his wife, as joint tenants. At the time of the transfer John Thiessen swore an affidavit of transferee that the actual value of the property was, in his opinion, $800,000.00.

At the same time as the transfer, John and Verna Thiessen registered a mortgage against the property in favour of the Toronto Dominion Bank, the same mortgagee as for Autumn, for the principle sum of $682,077.00. [ 5 ] The officer for Builders’ deposed that Builders’ had no knowledge of the transfer to the Thiessens.

Thiessen indicates that in the course of casual conversations he had with two employees of Builders’ he advised that the property had been transferred to his name and that of Verna Thiessen. [ 6 ] On June 22, 2009 Autumn provided a $10,000.00 cheque to Builders’ issued from the Bank account of Autumn as part payment of outstanding invoices for goods and services supplied to the property by Builders’. [ 7 ] On April 4, 2011 Builders’ obtained a default judgment against Autumn for $43,540.90 inclusive of all interest and costs and registered a writ of enforcement for that amount in the Alberta Personal Property Registry .

An application was made to set aside the default judgment but on August 26, 2011 Master Breitkreuz denied the application. No payment has been made in respect of the default judgment. [ 8 ] At the time of the transfer the property was the only asset owned by Autumn. Autumn had a line of credit with TD Canada Trust which was used by Autumn for building purposes for the property. The line of credit had a maximum limit of $50,000.00 which was overdrawn at the time of the transfer. Autumn was never in a position to pay debts as they became due outside of what funds could be provided by John and Verna Thiessen.

At the time of the transfer Autumn had no assets except a TD bank account containing $10.00. Is the Transfer of Land a Fraudulent Conveyance under the Statute of Elizabeth , and if so what remedies are available? [ 9 ] In Alberta fraudulent conveyances are addressed under two statutes: the Fraudulent Conveyances Act , 1571 (13 Eliz. 1) c.5 ( Statute of Elizabeth) and the Fraudulent Preferences Act , RSA 2000, c. F-24. [ 10 ] Krumm v.

McKay , 2003 ABQB 437 succinctly explains the purpose of these statutes: The purpose of the Statute of Elizabeth and the Fraudulent Preferences Act is to strike down all conveyances of property made with the intention of defrauding creditors, except for conveyances made for good consideration and bona fide to persons not having notice of the fraud. The legislation is to be interpreted liberally, and includes any kind of transfers or conveyances made with the requisite intent to defraud or hinder creditors, no matter what the form.

Para. 13. [ 11 ] To prove a fraudulent conveyance there must be a conveyance with a fraudulent intent and a conveyance against creditors. Dealing first with fraudulent intent, when a transfer involves nominal consideration an applicant need only show that the transferor intended fraud. There are two ways of showing fraudulent intent: first as a presumption of law, and second as a fact in evidence. ( Krumm

v. McKay , para. 14 ) [ 12 ] The applicant submits that when default judgment is obtained against a defendant the defendant is deemed to have admitted all facts and all allegations contained in the action ( Agricultural Financial Services Corporation v. Zaborski , 2009 ABQB 183 ). The action here included an allegation that Autumn fraudulently conveyed the property to John Thiessen to avoid payment of its lawful debts. While this statement of law is accepted, it is my view that direct evidence contrary to the presumption may be relied on.

In the result, the default judgment presumes the allegation of fraud in the statement of claim to be correct. However, it is still necessary to examine the facts to determine if there is evidence to establish there was no fraudulent intent. [ 13 ] Courts have recognized the use of “badges of fraud” to prove a prima facie case of fraudulent intent. Krumm v. McKay , para. 21, 38 ; Gerrow v. Dorais , 2010 ABQB 560 , para. 37 . [ 14 ] The following acts are identified as badges of fraud, and are submitted by the Applicant to be relevant to the present case: 1. The transaction was secret; 2.

The consideration is grossly inadequate; 3. A close relationship exists between the parties; 4. The transfer was of everything owned by the debtor; Gerrow v. Dorais , para. 34 5. The debtor continued in possession of the property after the transfer; 6. The transferor continued to represent that the property was his own asset even after the conveyance had been completed. M.A. Springman, George R. Stewart, and J. J.

Morrison, Frauds on Creditors : Fraudulent Conveyances and Preferences (Toronto: Thompson Reuters Canada Limited, 2009) (“Springman”) at 13-20.8, 13.20.9, and 13-20.12(3). [ 15 ] It was the Applicant’s position that the transfer, the transaction, was secret. However, there was no agreement for Autumn to advise Builders’ of any transfer of the property.

Also, the transfer was registered at Land Titles and available to any party who cared to search the property. [ 16 ] While the transfer was not secret, Autumn did nothing to bring the transfer to the attention of Builders’ and, more importantly, on June 22, 2009, well after the transfer to the Thiessens, Autumn provided a $10,000.00 cheque to Builders’ on its account as part payment of outstanding invoices for goods and services supplied by Builders’ to the property. I do not consider casual comments made by John Thiessen to employees of Autumn as notice to Autumn of the transfer.

Clearly, Autumn represented that the property was its own asset well after the conveyance. [ 17 ] It is also clear that the consideration of $1.00 is grossly inadequate for an $800,000.00 property. Also there was a close relationship between the parties, the transfer was everything owned by the debtor, and to an extent the debtor Autumn, through John Thiessen, continued in possession of the property. Autumn further represented to continue to be the owner by virtue of the $10,000.00 payment and by virtue of the Thiessens continued dealing with Builders’ presumably on behalf of Autumn. [ 18 ] In Krumm v.

McKay the Court found that the most persuasive badge leading to a finding of fraud was the close relationship between the debtor and the transferee. This includes transactions between individuals and corporations they control. This is the case here. [ 19 ] The second issue with regard to the applicability of a finding of a fraudulent conveyance is whether the conveyance was made against both “creditors and others”.

[ 20 ] In Kumm v. McKay , the court defines the term “creditors and others”: In Murdoch v. Murdoch et al [citation omitted], Bowen J. defines the words “creditors and others” under the Statute of Elizabeth as wide enough to include any person who has a legal or equitable right ... by virtue of which he is, or may become, entitled to rank as a creditor.” [ 21 ] Chan v.

Stanwood , 2002 CarswellBC, 1982 , 2002 BCCA 474 , 216 D.L.R. (4 th ) 625 , 6 B.C.L.R. (4 th ) 273 , 175 B.C.A.C. 86 , 13 C.C.L.T. (3d) 74 , 289 W.A.C. 86 , indicates that the intent of a transferor and transferee are the same when one is the directing mind of the other, for instance an individual incorporation. [ 22 ] The fact that Autumn acted with fraudulent intent is proven as a fact in evidence by the badges of fraud previously referred to herein.

Further, the transferees were privy to the fraud as the intent of the transferor and transferee are the same when one is the directing mind of the other. [ 23 ] Builders’ qualifies as a “creditor and other” as defined in Krumm v. McKay . This includes any person with a legal or equitable rate by which he is, or may become, entitled to rank as a creditor. At the date of the transfer Builders’ had a viable debt claim against Autumn in contract, unjust enrichment or quantum meruit and therefore qualifies as a “creditor or other” under the Statute of Elizabeth . [ 24 ] The Applicant has requested an order : 1.

Declaring that the transfer of land by Autumn is void as a fraudulent conveyance under the Statute of Elizabeth; 2. Directing the Registrar of Land Titles to return the title to the land to the name and status of the registered owner as it existed prior to the transfer; and 3. Directing that the Applicant may seize and sell the land and apply the proceeds to the Applicant’s writ of enforcement, after payment of any priority interests. Statute of Elizabeth, at 2-3 Alberta Rules of Court, AR 124/2010 , R 9.25(1) [ 25 ] Based on my analysis of the facts and the law the order will be granted as requested.

Although it is not strictly necessary, I will examine the remaining issues raised by the Applicant. Is the Transfer of Land a Fraudulent Preference? [ 26 ] The Fraudulent Preferences Act renders void any conveyance of real property made by a debtor with the intent to defeat, hinder, delay, or prejudice the debtor’s creditors at a time when the debtor is in insolvent circumstances. [ 27 ] The issue is much the same as that under the Fraudulent Conveyances Act but for the fact it requires that the debtor be insolvent. Krumm v.

McKay , para. 35 . [ 28 ] It is clear that Autumn was in insolvent circumstances and unable to pay its debts at the time of the transfer. Autumn had no

[ 28 ] It is clear that Autumn was in insolvent circumstances and unable to pay its debts at the time of the transfer. Autumn had no assets other than the property, its bank account was overdrawn and John Thiessen indicated that Autumn was never in a position to pay its debts outside of funds provided by John and Verna Thiessen on its behalf. As such, a fraudulent preference has been established by Autumn to the Thiessens. [ 29 ] Counsel for the Thiessens submitted that in actuality John and Verna Thiessen were the owners throughout and Autumn held the property in trust for them.

This was based on the fact that all payments were made by the Thiessens to Builders’. Also the Thiessens took the risk in having the property transferred to them and becoming the mortgagor on the property. It was indicated that this allowed them to obtain more funding for the benefit of creditors. [ 30 ] I do not accept this submission. There is no evidence of any trust and a trust is not created simply by a party making payments on behalf of a company which it is an officer of.

Further, as indicated, on June 22, 2009, Autumn provided a $10,000.00 cheque to Builders’ from its bank account as part payment of outstanding invoices for goods and services supplied to the property by Builders’. This is contradictory to any argument that the Thiessens held the property throughout. [ 31 ] I do not accept that the Thiessens were the owners of this property throughout through trust or otherwise. Simply put, payment by a director or shareholders on behalf of a corporation does not make the corporation’s assets those of a director or shareholder.

As indicated in Meier Estate Re , 2004 ABQB 352 , 366 A.R. 299 : Few principles of law are better established then the proposition that corporate assets belong to the corporation, not the shareholder. The claimant points to a pattern of behaviour on the part of the testator that suggests that he frequently treated corporate property as his own, but the testator’s cavalier approach to the distinction between corporate and personal assets is not sufficient to establish a trust.

A sole shareholder has an interest in corporate assets, but that interest does not operate so as to vest beneficial ownership of those assets in him: Kosmopouls v. Constitution Insurance Co. of Canada , [1987] S S.C.R. 2. As Hollinrake J.A. points out in British Columbia (Assessor of Area No. 25 - Northwest/Prince Rupert) v. N & V Johnson Services Ltd., [1990] B.C. J.

No. 1964 (C.A.) : “A company does not hold its assets in trust for its shareholders or any one of them.” [ 32 ] The transfer depleted Autumn of its only asset without any payment or asset being replaced in the estate of Autumn to stand in the place of the property. [ 33 ] The applicant requests an order: 1. Declaring that the transfer of land by Autumn is void as a fraudulent conveyance under the Fraudulent Preferences Act ; 2. Directing the Registrar of Land Titles to return the title to the land to the name and status of the registered owner as it existed prior to the transfer; and 3.

Directing that the applicant may seize and sell the land and apply the proceeds to the applicant’s writ of enforcement, afer payment of any priority interests. [ 34 ] Based on my analysis of the facts and the law the order is granted as requested. Is the Remedy of Oppression Established? [ 35 ] The Alberta Business Corporations Act , s. 242(1), permits a complainant to apply for an oppression remedy. In order to have standing to commence an action based upon the oppression remedy, a creditor must come within the definition of “complainant”. According to the Alberta Business Corporations Act , s. 239(

b) a creditor can be a complainant, but only if the Court exercises its discretion to find that the creditor is a proper person to make an application for the oppression remedy.

[36]

Section 239(b) (iii) (iv) requires a two-step analysis of the issue: first, was the applicant a “creditor” at the time of theconduct in question and second if the applicant was a creditor was it a proper person to whom standing should be granted. [37] In Gignac Sutts & Woodall Construction Co. v. Harris, 1997 CarswellOnt 2915, the Court considered the meaning of“creditor” in the context of an oppression application.

The Court addressed a fact situation where, at the date of the conduct complainedof, the applicants’ claims (a construction claim for reasonable compensation for services performed, and solicitor account) sounded inunjust enrichment. The amount in question had not been billed let alone payment demanded or action commenced. The Court held thatthe applicants were creditors for the purposes of the oppression remedy, giving wide meaning to the concept of “creditor”. [38] A Court has broad powers to determine that an applicant is a proper person to apply for the oppression remedy.

This is abroad power of justice and equity whereby a Court may allow a person who would not otherwise be a “complainant” to take proceedingsin order to “right a wrong done to the corporation which would otherwise not be righted” or to “obtain compensation himself or itselfwhere his or its interests have suffered”.

First Edmonton Place v. 315888 Alberta Ltd., (AB KB), 1988 CarswellAlta103, paras. 50-51. [39] In order to obtain leave as a “proper person,” an applicant must establish a prima facie case of having been subjected tooppressive conduct, or unfairly treated, or having his or her interests unfairly disregarded. First Edmonton Place v. 315888 Alberta Ltd.,para. 58 [40]

Section 242 of the Alberta Business Corporations Act contains the statutory test for the oppression remedy: S. 242(2) If, on an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates: (

a) any act or omission of the corporation or any of its affiliates effects a result, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any [...] creditor [...], the Court may make an orderto rectify the matters complained of. [41]

Section 242 of the Alberta Business Corporations Act provides relief not only against acts that are “oppressive,” but also actsthat are “unfairly prejudicial” or “unfairly disregard the interests” of a creditor, making it clear that the remedy applies where theimpugned conduct is wrongful or unfair, but not actually unlawful. [42] In the context of creditor-applicants, the oppression remedy has been decided based upon concepts of unfairly disregardingthe reasonable expectations of the creditor: [...] the test of unfair prejudice or unfair disregard should encompass the following considerations: the protection of the underlyingexpectation of a creditor in its arrangement with the corporation, the extent to which the acts complained of were unforeseeable or thecreditor could reasonably have protected itself from such acts, at the detriment to the interest of the creditor.

First Edmonton Place Ltd. v. 315888 Alberta Ltd., (AB KB), 1988 CarswellAlta 103, 60 Alta. L.R. (2d) 122, 40B.C.R. 28, 40 B.L.R. 28, para. 40.

[ 43 ] The following have been identified as reasonable expectations of creditors, and are relevant in the present case: 1. A creditor reasonably expects that a corporation will not be used as a vehicle for fraud; 2. A creditor reasonably expects that the debtor will not convey away, for no consideration, exigible assets which will leave the creditor unpaid and unable to realize upon assets to satisfy the debt; 3.

A creditor reasonably expects that the directors of a corporation will manage the company in accordance with their legal obligations, namely to act honestly and in good faith in the best interests of the corporation and to exercise the diligence expected of a reasonably prudent person. 4. A creditor reasonably expects that the debtor will honour the understandings and expectations which the debtor has created and encouraged. M.A. Springman, George R. Stewart, and J. J.

Morrison, Frauds on Creditors : Fraudulent Conveyances and Preferences (Toronto: Thompson Reuters Canada Limited, 2009) (“Springman”) at p. 24 - 12.1, 24-13, 24-15, 24-16. [ 44 ] The builder was a creditor in the context of the present application. In Gignac Sutts v. Harris it was held that a creditor includes any person with an existing claim or action against the corporation on the date of the impugned conduct. Gignac Sutts v. Harris, para. 66-68, 77.

As stated in the fraudulent preference analysis in this decision, Builders’ qualifies as a creditor as it is a person with a debt obligation owing, even if the obligation was not payable at the date of the impugned transaction. Also, this court has a broad equity discretion to grant Builders’ leave as a proper person to bring an oppression application as it can establish a prima facie case of having been subjected to oppressive conduct, being unfairly treated and having its interests unfairly disregarded by Autumn.

First Edmonton Place Ltd. v. 315888 Alberta Ltd. , para. 50, 51, and 58 . [ 45 ] A creditor does not have to prove that a respondent acted with bad faith or fraudulent intention. The court is concerned with the effect of the respondent’s actions on the applicant. It is the impact of the conduct, not intention, which is to be assessed by the court. Gignac Sutts v. Harris , para. 79. [ 46 ] With regard to the oppression test , Autumn unfairly disregarded the reasonable expectations of the applicant as a creditor.

Autumn disregarded Builders’ reasonable expectation that Autumn would not be used as a vehicle for fraud upon the applicant. The conduct of Autumn in participating in the transfer reduced the pool of assets from which Autumn could pay its creditors. Its conduct unfairly disregarded Builders’ reasonable expectation that Autumn would not be used as a vehicle to commit fraud upon the applicant. The transfer depleted Autumn of its only asset without any consideration. Also the directors of Autumn failed to manage Autumn in the best interests of Autumn.

In my view, the actions of Autumn were oppressive and unfairly prejudicial to Builders’ and unfairly disregarded the interests of Builders’. Accordingly, this court will make an order to rectify the matters complained of pursuant to s. 242(2) of the Alberta Business Corporations Act . [ 47 ] The transfer of land by Autumn to Thiessens will be set aside and the Registrar of Land Titles will be directed to return the title to the land to the name and status as it existed prior to the transfer of land to Thiessens. [ 48 ] If the parties are unable to agree, costs may be spoken to.

Heard on the 19 th day of January, 2012. Dated at the City of Edmonton, Alberta this 3 rd day of February, 2012.

R. P. Wacowich M.C.C.Q.B.A. Appearances: Patrick Kirwin Jennifer C. Liddle Kirwin LLP for the Plaintiff Jeff Bone Legal Aid Alberta for the Defendant