In Wolf v Anstett, 2012 ONSC 3220, a creditor used section 5 of the Assignment and Preferences Act (the Ontario provincial legislation which may be applied to set aside transactions made by an insolvent person or a “person in contemplation of insolvency”, with an intent to give an unjust preference to a creditor) and Rule 16.08(16) of the Rules of Civil Procedure[i] to halt a would-be fraudster from attempting to thwart a previous judgment by using a newly incorporated entity to receive payments that should have went to the plaintiff.
The creditor had previously obtained judgment against Peter Anstett (“Anstett”) in January 2011 for $415,000 and later served a notice of garnishment. For a number of years before and after the judgment, Anstett worked as an independent sales agent for Don’s Produce Inc. (“Don’s Produce). In May 2011, Anstett and his wife, Patricia Butts (“Butts”) incorporated 1841918 Ontario Inc. (“1841918”) to which Don’s Produce was directed to pay amounts owing to Anstett for his work. Butts was the sole shareholder, director and officer of 1841918. The creditor argued that the incorporation of 1841918 was intended to defeat or defraud the plaintiff and thwart enforcement of the judgment (i.e. money that should have went to the plaintiff, was being paid fraudulently into the new corporation).
In his testimony and affidavit evidence, Anstett actually acknowledged his indebtedness to the creditor, but stated further that he was also significantly indebted to his wife and was attempting to pay off that indebtedness in preference to the judgment for the creditor. Further, Anstett stated that the purpose of incorporating 1841918 and having his earnings from Don’s Produce paid to 1841918 was so that his wife could “go to the front of the line” and protect his income from his creditors.
The Judge found that the timing of incorporation of 1841918 and that Butts was the sole shareholder was clearly an attempt to put Anstett’s income out of the reach of the creditor and found the direction to pay Anstett’s earnings from Don’s Produce to 1841918 as a preference contrary to s.5 of the Assignments and Preferences Act. Pursuant to Rule 60.08(16) of the Rules of Civil Procedure, the Judge used his authority to require Don Produce to honour the notice of garnishment and pay the creditor.
This case was supported by strong evidence that showed that the new corporation was set up in an attempt to jump ahead of the creditor that already had an outstanding judgment. Section 5 of the Assignment and Preferences Act provides a valuable tool to void such fraudulent attempts to divert money ahead of creditors with an established position.
by Frank Spizzirri & Bonnie Tsui (articling student)
[i] Rule 16.08 (16) of the Rules of Civil Procedure gives a judge the authority to determine the rights and liabilities of a garnishee, debtor, and any assignee.