Sep 4, 2018

ONTARIO COURT OF APPEAL SUMMARIES (AUGUST 27 – 31, 2018)

Mercado Capital Corporation v. Qureshi, 2018 ONCA 711 (CanLII)

Facts:

The appellant is the creditor of the respondent’s husband. While married, the husband and wife sold their matrimonial home (“First Home”), which was registered in the husband’s name, and used the proceeds and other money to purchase a new home in both their names (“Second Home”).

After the appellant petitioned the husband into bankruptcy within one year of the purchase, the appellant sought to void the transfer of half of the new home into the respondent’s name, as a transfer for undervalue contrary to s. 96(1)(b)(i) of the Bankruptcy and Insolvency Act (“BIA”). After being adjudged bankrupt in 2016, the Second Home was sold.

In dismissing the appellant’s claim, the application judge exercised his “equitable discretion” not to declare the respondent’s 50% interest in the Second Home void, relying on the following factors: the good faith of the husband and wife and the lack of any intention to defeat creditors; the respondent’s “substantial non-monetary contribution to the family by her hard work managing the household and caring for their children;” the contributions of the respondent’s parents to the purchase price of both the First Home and Second Home; the husband and wife’s honest belief that the respondent was entitled to a 50% interest in the Second Home because it was their matrimonial home; the respondent and her children have no other guaranteed form of financial support, the Second Home is the respondent’s only asset, and the respondent needs the proceeds from the sale of the home to support herself and her children; and the agreement of purchase and sale for the Second Home was signed by the respondent in 2015, well before the one year period preceding her husband’s bankruptcy.

Issues:

(1) Did the purchase of the Second Home in the joint names of husband and wife constitute a transfer by the husband to the respondent of one half of the home at undervalue?

(2) If so, did the transfer take place within one year or five years of the date of the husband’s initial bankruptcy event?

(3) If the transfer was within five years, did the appellant prove that the transferor was either insolvent when the transfer took place or intended to defraud, defeat, or delay a creditor?

(4) Does the court have discretion under s. 96(1) of the BIA to decline to declare the transfer void as against the trustee in bankruptcy or against the creditor authorized to bring the application under s. 38?

(5) If the court has that discretion, did the application judge err in law in the basis on which he exercised it?

Holding:

Appeal dismissed.

Reasoning:

(1) No, there was not a transfer at undervalue. Both husband and wife believed that each had an equal interest in their matrimonial homes, even though the First Home was registered in the husband’s name alone, and the funds used to purchase both homes came from the husband’s business and from the respondent’s parents. The respondent’s direct contribution was in running the home and raising the children.

This finding is consistent with the Family Law Act and the notion that marriage is an economic partnership, entitling each partner to an equal share of the net value of assets.

(2) No, the transfer did not take place within one year of the date of the husband’s bankruptcy.

The respondent entered into the agreement of purchase and sale for the Second Home on February 18, 2015. The initial bankruptcy event occurred on June 2, 2016. February 18, 2015 was the effective date of the impugned disposition of property.

(3) No, the appellant did not prove that the husband was insolvent when the transfer took place or intended to defraud, defeat, or delay a creditor.

The appellant bore the burden of establishing the foregoing requirements in order to impugn the transfer at undervalue. Since none of these elements were proved, there was no basis for the court to void the purchase of the Second Home in joint names and in particular, to void the impugned disposition to the respondent.

(4)/(5) Since there was no finding of an impeachable transfer for undervalue, there was no need for the court to address the issue of the scope of the discretion in the court not to make the order when all the conditions are met.

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