Sep 11, 2017

Summary of KOR Machining and Mechanical Ltd v KOR Welding and Machining Inc and SICO Welding and Fabrication Inc

KOR Machining and Mechanical Ltd v KOR Welding and Machining Inc and SICO Welding and Fabrication Inc, 2017 ABQB 290 (CanLII)

This was an Application for a declaration that a transfer of chattel from the Defendant to the Respondent was a fraudulent conveyance. The Plaintiff had brought a debt Action for approximately $215,000 against the Defendant, and then a Summary Judgment Application, which was granted. Although this fact was not learned until much later, the Defendant executed an asset purchase agreement with the Respondent, SICO Welding and Fabrication Inc. (“SICO”) on the eve of the hearing of the Summary Judgment Application, conveying all of the assets of the Defendant, including the interest in various business contracts, to SICO for some $24,000, to be paid in $500 monthly installments. This purchase agreement was discovered during an examination in aid of execution.

In response to the Plaintiff’s Application, the Defendant’s sole director, Mr. Tremblay, who was also the sole director of SICO, filed an Affidavit attesting that the value of the conveyed assets was $24,175. The Master rejected this evidence as suspicious. An appraisal was prepared in response to the present Application and it was attached as an exhibit to Mr. Tremblay’s Affidavit. The appraiser did not provide any sworn testimony. The appraisal was not done until seven months after the conveyance and was prepared five days after the Plaintiff’s Application was filed. Finally, the Master noted that it was not used as the basis of the transaction; it was clearly prepared in connection with the defence of the Application.

Mr. Tremblay also gave conflicting evidence with respect to how the $24,000 payment from the Respondent to the Defendant was carried out. It was clear the evidence given at the examination in aid of execution was, or became untrue. Master Robertson observed that Rule 5.27 applies to examinations in aid of execution as a result of the “analogy rule” Rule 1.7, and ordered that Mr. Tremblay provide a correcting Affidavit once the truth of the matter became known.

The Master also held that Mr. Tremblay’s Affidavit had been filed late, essentially on the eve of the Application. Master Robertson noted that Rule 6.6 permitted the Court to disregard the evidence, but Master Robertson declined to do so, as it formed the basis of the finding that the conveyances were fraudulent.

The Defendant argued that it was not insolvent at the time of the transfer and thus the conveyance could not be fraudulent. Master Robertson noted that the Defendant was facing Summary Judgment for a substantial sum, and it had conveyed all, or substantially all of its assets so that Mr. Tremblay could essentially carry on the same business with the same assets. Master Robertson also noted that it was no answer that the Plaintiff had not yet obtained Judgment at the time of the transfer, as Rule 9.24 provides that where the intention of a transaction is to defeat creditors, it is not necessary for a Judgment to have been obtained prior to the transfer.

Because the transfer was between non-arm’s-length parties, the onus shifted to the transferor to prove the transfer was not done with the intention to defeat creditors. Having failed to do so, the Master held that the conveyances were fraudulent.