Creditor Proofing No Refuge for Fraudsters

David Debenham

Fraudsters often convey their assets to family and friends to hold for them. Those transfers can be set as‎ide if one can prove that the conveyance was intended to hinder,delay or defeat creditors from being paid out of the fraudster’s assets. Simple enough. But what if the fraudster embezzles, spends the proceeds, and then puts her mutual fund RRSPs into a creditor proof investment vehicle called a “seg fund”? There is no “conveyance” of an asset of the fraudster’s hands—she still owns the RRSPs. What if the seq fund was recommended by the fraudster’s investment counselor as being more suitable than the mutual fund? Was her transfer to the seq fund to “hinder, delay or defeat” her creditors?

In the case of Bearfield Dev. v. McNabb‎ I successfully argued that a conveyance on a similar set of facts to the one above was indeed fraudulent. Anyone who embezzles money automatically owes a legal obligation to repay their victim, making the victim a creditor of the fraudster. Moreover, the law assumes that a person the natural consequences of thier actions, so when she puts her RRSP into a creditor proof Seq Fund, she must have intended to defeat the claims of her creditors by so doing. Finally, the Fraudulent Conveyance Act is a public welfare statute that therefore receives a “large and liberal interpretation”.   As such the court was prepared to consider a transfer into a Seq Fund a “conveyance” within the meaning of the legislation.

The lesson is clear—fraudsters can find no solace by trying to use lawful creditor-proofing instruments for illicit purposes.

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David Debenham

David Debenham

David is the co-chair of the Fraud Law Group of the law firm of McMillan LLP