Mar 17, 2014

Summary of Royal Bank of Canada v. North American Life Assurance Co.

Royal Bank of Canada v. North American Life Assurance Co., 1994 CanLII 4696 (SK CA)
Appeal from order of Baynton J. dismissing trustee's application to have transaction declared void.Dr. Ramgotra purchased an RRIF with North American Life (NAL) on July 11, 1990 with funds originally contributed to an exempt NAL RRSP. On July 24, 1990 he added funds to the RRIF which he had originally contributed to 2 other non-exempt RRSPs. In 1992 he declared bankruptcy. His trustee brought an application under Rule 89 of the Bankruptcy Rules seeking a declaration that the July 24, 1990 transfers from the non-exempt RRSP's to the NAL RRIF were void under s. 91(2) of the Bankruptcy Act. The chambers judge found that the transfer of the funds was a settlement and that Dr. Ramgotra was solvent on July 24, 1990 but that the settlement was not void because it was bona fide and done for legitimate business reasons and not to avoid creditors. Royal Bank then obtained a s. 38 order permitting it to appeal this decision in its own name and for its own benefit.ISSUES: 1)Were the RRSP transfers settlements? 2)Was Dr. Ramgotra insolvent at the time of the transfers? 3)Should the July 24, 1990 transactions be declared void on the basis that Dr. Ramgotra's interest in the property did not pass on July 24, 1990? 4)Is there a place for a good faith test in assessing whether a settlement is valid as against the trustee in bankruptcy under s.91(2)?HELD: 1)The transfer of the funds into the NAL RRIF on July 24, 1990, was a settlement. It resulted in Mrs. Ramgotra being designated as the beneficiary of the funds previously deposited into the other 2 RRSP's. This settled a contingent interest on her. 2)The trustee failed to prove that Dr. Ramgotra was insolvent as at this date. Section 91(1) therefore did not apply. 3)S. 91(2) of the Act only voids settlements where the debtor is solvent, if the debtor's property does not pass at the time of the settlement. In this case, property passed as soon as Mrs. Ramgotra acquired her contingent property interest by being designated as beneficiary. To hold otherwise would mean that all contributions to RRIFs by solvent persons within 5 years of bankruptcy were void. Where an intention to defeat creditors is actually present, fraudulent conveyance legislation would still permit redress. 4)Given the court's construction of s. 91(2) it was unnecessary to consider the application of the good faith test applied by the chambers judge in the court below.