Can the limitation period for a trustee to bring a claim begin prior to the date of bankruptcy?Albert Gelman Inc. v. 1529439 Ontario Limited, 2020 ONSC 5531 (CanLII)
1. The trustee brought a motion for summary judgment seeking to set aside two transactions involving property owned by the bankrupt individual on the basis that they were transfers at undervalue. The transactions took place prior to the bankruptcy application. The first transaction involved the transfer by the bankrupt of his undivided one-half interest in real property to his spouse as sole owner. The second transaction involved the transfer of the bankrupt’s preferred shares in a family-owned company to another company controlled by his wife.
2. The trustee argued that the transfers were intended to defeat and frustrate the bankrupt’s creditors of the bankrupt. The respondents, including the bankrupt and his spouse, argued that the trustee’s claims were barred by the Limitations Act.
3. On August 22, 2008, two days after he was advised of a legal claim against him, the bankrupt transferred his one-half interest in certain real property to his spouse for “$2 for natural love and affection.” The bankrupt argued that the transfer was not at undervalue because his wife paid the mortgage payments, property taxes and all other expenses apart from the utilities, maintenance and minor upkeep of the property, which were paid by the bankrupt. Accordingly, his wife supposedly owned a greater than 50% interest in the property prior to the transfer.
4. The Court found that the property transfer was a transfer at undervalue, made with the intention to defraud, defeat or delay his creditors. There was no evidence that the wife’s contributions were equal to or greater than the value of the bankrupt’s one-half interest in the equity of the property at the time of the transfer. The Court also took notice of the fact that the bankrupt remained in possession or occupation of the property for his own use following the transfer to his wife. The transfer was therefore void as against the trustee.
5. The trustee argued that the transfer of the shares was both a transfer at undervalue and a preference for the purposes of the BIA. It was a non-arm’s length transaction made within days of the initial bankruptcy event. The respondents argued that the transfer was not at undervalue because the shares were seized to satisfy the company’s security on the amounts owing to it by the bankrupt.
6. The Court found that through the transfer, the company received value in excess of the amount it had lent to the bankrupt. Moreover, contrary to the respondents’ submissions, the shares were not seized, they were transferred by corporate resolution. The share transfer was therefore void as against the trustee.
7. Finally, the Court considered whether the trustee’s claims were statute barred. The respondents argued that the creditors’ knowledge with respect to the bankrupt’s assets should be imputed to the trustee such that the trustee would be deemed to have the information at the time that the creditors had it. Therefore, the limitation period would run from the date when the creditors had knowledge. The respondents argue that the trustee’s claim was issued years after the property was transferred and years after the creditors became aware of that transfer (therefore, outside of the two-year limitation period prescribed by the Limitations Act).
8. The trustee argued that the limitation period for a trustee in bankruptcy commences at the time when the trustee is appointed. Before a trustee in bankruptcy is appointed, it is not a “claimant” as that term is used in the LA. A trustee in bankruptcy can only be considered “the person with the claim” for discoverability purposes under s. 5(1)(a) of the LA when it is appointed.9. The Trustee was appointed on October 8, 2013. This is the earliest date on which the limitation period could have commenced. The Trustee brought its statement of claim within two years of its appointment. The conduct of creditors does not affect the time when the limitation period begins to run for a trustee. Creditors are not plaintiffs in such proceedings since trustees are claimants in their own right. There was no evidence that the trustee was acting on the instructions of the creditors and misusing the procedures available to it under the BIA. Accordingly, the Trustee’s claim was not statute-barred.