Picture this hypothetical. You sue a former business associate. Six weeks after your claim is served, the title search on his Brampton home shows a change: he has transferred his half to his wife for two dollars. You win your judgment a year later, and he tells you, with some satisfaction, that he has no assets.
Ontario has dealt with this tactic for a long time. The Fraudulent Conveyances Act allows a court to treat a transfer as void against the creditors it was meant to defeat, so the property can be reached as though the transfer had not stopped them. The word “fraudulent” in the Act is broader than it sounds, and the claim comes with a deadline that many creditors discover too late.
What follows is general information, not legal advice. These claims turn heavily on facts and evidence, and both creditors and people who received property should get specific advice about their own situation.
What the Act Actually Says
The core provision is short. Section 2 of the Fraudulent Conveyances Act says that a conveyance of real or personal property made with intent to defeat, hinder, delay or defraud creditors or others of what they are owed is void as against those people and their assigns.
Three points follow from that language.
It covers more than a deed. “Conveyance” reaches land and personal property. Transfers of a home, a vehicle, shares, business equipment or money could all come under scrutiny. Depending on the facts, so could a mortgage granted to a friendly party to soak up the equity in a property.
Intent is the key, and the person need not be a swindler. A debtor who only meant to delay a creditor can still fall within the section. Nobody has to prove an elaborate scheme.
“Creditors or others” is broad. The protection extends beyond someone holding a judgment. A person with a claim that has not yet gone to judgment may be able to bring the action, and that may include someone whose claim came about after the transfer, if the transfer was aimed at future creditors. That can matter where a person moves assets just before starting a risky venture or taking on a guarantee.
The transfer stays effective between the debtor and the recipient. It is the creditor who is entitled to treat it as ineffective, usually so the property can be reached by enforcement.
Proving Intent When Nobody Admits It
Debtors rarely write down that they are hiding assets. Courts instead draw inferences from surrounding facts that have long been called “badges of fraud.” There is no fixed list, and no one sign is decisive, but they commonly include:
- a transfer to a spouse, child, sibling, close friend or company the debtor controls;
- little or no real payment for the property;
- timing close to a demand letter, a lawsuit, a judgment or a financial crisis;
- a transfer of most of what the debtor owns, leaving little for creditors;
- secrecy, or haste that departs from ordinary business practice;
- the debtor continuing to live in the house or use the property as before;
- documents that do not match what really happened, such as a false statement of the amount paid.
When enough of these signs appear, the evidence can shift the practical burden to the debtor and recipient to explain the transaction. An innocent explanation can succeed, and courts will weigh it. Estate planning, repayment of a genuine family loan and a real separation settlement are all possible reasons for a transfer. Those explanations tend to be stronger when supported by records created at the time, rather than by a story that emerges later.
The Good-Faith Purchaser Exception
Section 3 protects a person who received property for good consideration and in good faith, without notice or knowledge of the debtor’s intent. So someone who bought the debtor’s truck at fair market value in an ordinary sale, knowing nothing of the debtor’s troubles, should generally be safe. The exception requires both elements, and a recipient relying on the exception should expect to have to show both.
This raises the question of whether a family member who paid something is protected. Paying a price is relevant but does not settle the matter. A son who paid fair value but knew his father wanted to get the house away from a judgment may not fit within the exception. Equally, a spouse who gave nothing of value is not protected by section 3, however innocent she may have been. If you were given property by a relative in financial trouble, it is sensible to get advice as soon as questions arise.
The Limitation Trap
For years, there was uncertainty over how long a creditor had to attack a transfer of land. Some claimants believed they had ten years under the Real Property Limitations Act. A five-judge panel of the Court of Appeal for Ontario resolved the question in Bank of Montreal v. Iskenderov, 2023 ONCA 528, holding that the two-year basic limitation period in the Limitations Act, 2002 governs an action to set aside a conveyance under the Fraudulent Conveyances Act.
In practice:
- The two years generally run from when the claim was discovered, meaning when you knew or reasonably ought to have known the facts, not necessarily the transfer date.
- Land registry records are public. Creditors who could easily have checked title may have a hard time saying they could not have known.
- A claim held off until after judgment can be out of time. Waiting to finish your main case first is not a safe plan.
Run title and corporate searches on a debtor early, and repeat them. If a search turns up a suspicious transfer, record the date you found it and get advice right away. In a situation with a live lawsuit against the debtor, a lawyer may recommend amending the claim to add the transfer and the recipient as a party, or starting a separate action.
Remedies and Keeping the Property in Place
If a claim succeeds, the court can declare the conveyance void as against the creditor. In the case of land, the creditor can then enforce a judgment against the debtor’s interest as if the transfer had not defeated it. A successful order does not usually hand the property to the claimant, and enforcement steps still lie ahead, with other creditors and mortgages to consider.
Because a recipient could sell or mortgage the property while the court case is under way, creditors often look at protective steps. For land, a certificate of pending litigation can be registered on title with the court’s permission where an interest in the land is genuinely at stake, warning potential buyers and lenders. In a stronger and more urgent case, a Mareva injunction, which freezes assets, could be sought, although the test is demanding and the moving party normally has to give an undertaking to pay damages if the order turns out to have been wrong. A claimant who registers a certificate of pending litigation without good grounds can also face consequences. Neither tool should be treated as routine.
Using an Examination to Find Evidence
A debtor who has a judgment against them can be examined under oath. In both the Superior Court and the Small Claims Court, the topics include the disposal of property before or after the order was made. Asking who holds title now, what was paid, where the money went, and why the transfer happened may produce evidence. In the Superior Court, the rules also state that if an examination shows that a debtor has concealed or made away with property to defeat or defraud creditors, a judge may make a contempt order.
Ordinary documents help too. Parcel registers and transfer details from the Peel land registry office, corporate profiles, bank records produced in the litigation and tax information can each fill out the timeline. The statements on a land transfer about the amount paid are particularly worth reading closely, as they were made at the time and they may not match what the parties say later.
Other Tools in the Same Family
The Fraudulent Conveyances Act is not the only route, and the right one depends on the facts.
Assignments and Preferences Act. This Ontario statute is aimed at insolvent debtors who transfer property or pay certain creditors to give them an unjust preference over others. It uses different tests from the Fraudulent Conveyances Act and has its own short-term presumption for transactions attacked within 60 days.
Bankruptcy and Insolvency Act. If the debtor goes bankrupt, the trustee can examine past transactions. Section 96 allows a court to set aside a transfer at undervalue or order a party to pay the difference to the estate. For a transfer to a non-arm’s length party, such as a relative, the review can look back as far as five years before the initial bankruptcy event, with conditions, and one year without them. For arm’s length parties, the period is one year, and insolvency and an intent to defraud must also be shown. Once a bankruptcy is under way, an individual creditor’s ability to pursue the matter may be limited, and the trustee is usually the first call.
Corporate remedies. Where assets have been stripped out of a company, the oppression remedy in corporate legislation, or a claim against a director personally, might fit. These issues involve their own tests and need separate analysis.
If You Are the One Being Asked About a Transfer
Many people who are named in these actions did not plan anything. A parent who signed a house over to an adult child for tax reasons, or a spouse who signed whatever the bank’s lawyer set out, can suddenly face a lawsuit. If you are a recipient or a debtor:
- Do not sell, remortgage or move the property in response to a demand without advice, as that can make things considerably worse.
- Gather anything from the time of the transfer: lawyer’s reporting letters, proof of payment, loan documents, emails and accountant’s notes.
- Do not destroy documents. A party to a lawsuit has disclosure obligations, and missing records may be held against you.
- Do not assume that having title in your name means you are safe, or that you have done something wrong.
Before any debtor transfers property while claims are looming, the safest step is to speak with a lawyer first. A planned, fair and documented transaction looks very different from one signed the week after a statement of claim arrives.
Getting Practical
A fraudulent conveyance action is a lawsuit on top of a lawsuit. Before starting one, weigh the likely equity after mortgages, the costs of proving intent, and whether the debtor has other assets that are simpler to reach. If you hold a judgment and suspect a transfer, the firm’s page on real estate and mortgage litigation covers related property disputes, and you can contact Sawan Law House LLP with your judgment, title search results and any dates you have. The date you first learned of the transfer may be one of the most important facts in the file, so write it down now.