Bill 32 - Debtor Transactions Act

BILL 32

Debtor Transactions Act

Her Majesty, by and with the advice and consent of the Legislative Assembly of New Brunswick, enacts as follows:

PART 1

PRELIMINARY MATTERS

Definitions

1 The following definitions apply in this Act.

“claim” means the right to satisfaction of an obligation owed by a debtor, whether the obligation is (créance)

(a) liquidated or unliquidated,

(b) absolute or contingent,

(d) currently payable or payable in the future.

“confer” includes create, grant, provide or transfer. (conférer)

“creditor” means, subject to section 12, a person who has a claim. (créancier)

“creditor transaction” means a transaction in which a debtor directly or indirectly confers a benefit on a creditor by satisfying an obligation in whole or in part or by providing security for the satisfaction of an obligation in whole or in part, but does not include a spousal transaction. (opération en faveur du créancier)

“exempt property” means property that is exempt from realization under the Enforcement of Money Judgments Act or otherwise exempt by law from judgment enforcement measures. (bien insaisissable)

“insolvent”, with respect to a person, means that (insolvable)

(a) the person is for any reason unable to meet his or her obligations as they generally become payable,

(b) the person has ceased paying his or her obligations in the ordinary course of business as they generally become payable, or

(c) the aggregate of the person’s property, other than exempt property, at a fair valuation is not sufficient to enable payment of all his or her obligations, whether or not those obligations are currently payable.

“proceeds” means (produit)

(a) identifiable or traceable property that is derived directly or indirectly from any dealing with

( i) the property that is the subject of the transaction, or

( ii) the proceeds of the property that is the subject of the transaction, and

(b) the right to an insurance payment or any other payment as indemnity or compensation for loss of or damage to

( i) the property that is the subject of the transaction, or

( ii) the proceeds of the property that is the subject of the transaction.

“security interest” means an interest in property that secures payment or performance of an obligation and, in sections 19 and 20, includes an interest referred to in paragraph (b) of the definition “security interest” in subsection 1(1) of the Personal Property Security Act. (sûreté)

“spousal transaction” means a transaction in which the parties are or were spouses and that is effected by a separation agreement or court order that provides for the division of property and financial resources or for support following the breakdown of the relationship. (opération entre conjoints)

“spouse” means, in relation to any person, (conjoint)

(a) a person to whom that person is married, or

(b) a person with whom that person cohabits in a conjugal relationship.

“transaction” means the conferral of a benefit, whether or not consideration is provided in return, and includes (opération)

(a) the conferral of an interest in existing property or property to be acquired in the future, whether or not the property is exempt property in the hands of the transferor, including a settlement on the transferor as a trustee under a trust,

(b) the provision of services,

(d) the release or discharge of an interest or obligation,

(e) the conferral of a security interest, charge, lien or encumbrance,

(f) the conferral of a licence, quota, right to use or right to payment,

(g) the designation of a beneficiary,

(h) the voluntary purchase or redemption of its shares by a corporation or the voluntary payment of a dividend by a corporation, other than a dividend in the form of its shares,

(i) the refusal by a debtor to act under a power of appointment to confer an interest in property on the debtor,

(j) the disclaimer of an interest in property, whether before or after the interest has vested,

(k) the creation or augmentation of a security interest held by a creditor in property of a debtor as a result of the satisfaction of an obligation owed to another person that is secured by a security interest in the same property if

( i) an unsecured claim of the creditor in that property becomes secured in whole or in part, or

( ii) a claim of the creditor in that property that was unsecured in part becomes secured in whole or to a greater extent,

(l) the satisfaction of an obligation owed by a person other than the debtor, and

(m) the assumption of an obligation to take any of the actions or bring about any of the events in paragraphs (a) to (l).

“transferee” means a person who receives a benefit under a transaction and includes a creditor who receives a benefit under a creditor transaction. (destinataire du transfert)

Transactions

2( 1) A transaction may be a single event or may comprise a series of closely related events, including the provision of services over time.

2( 2) The date of a transaction is the date on which the benefit is conferred or, if the transaction comprises a series of closely related events, the date on which the events are substantially completed.

Application for an order

3( 1) An application for an order under this Act shall be made to The Court of Queen’s Bench of New Brunswick.

3( 2) An application under subsection (1) may be made whether or not the applicant has commenced proceedings or obtained a judgment against the debtor in relation to a claim.

PART 2

TRANSACTIONS

Application

4( 1) Subject to subsection (2), this Part applies to any transaction that is not a creditor transaction.

4( 2) If a debtor confers a benefit on a creditor and the value of the benefit exceeds the value of the obligation satisfied or secured, this Part applies to the portion of the benefit that exceeds the obligation.

Applicants

5( 1) An application for an order under this Part may be made by

(a) a creditor whose claim existed at the date of the transaction that is the subject of the application, and

(b) a creditor whose claim arose after the date of the transaction that is the subject of the application, in the case of a transaction referred to in paragraph 6(1)(b) or (c).

5( 2) For the purposes of subsection (1), a person who does not have a claim but has commenced proceedings seeking an interest in property or an order for the payment of money shall be deemed to be a creditor, and the date on which the person commenced the proceedings shall be deemed to be the date on which the person’s claim arose.

Grounds for an order

6( 1) Subject to section 7, the court may make an order in relation to

(a) a transaction between a debtor and a transferee in which

( i) the debtor received no consideration or consideration worth conspicuously less than the benefit conferred by the debtor under the transaction, and

( ii) the debtor was insolvent at the time of the transaction, became insolvent as a result of the transaction or entered into the transaction in circumstances in which the debtor was demonstrably at risk of insolvency and the debtor became insolvent within six months after the date of the transaction,

(b) a transaction between a debtor and a transferee in which

( i) the debtor intended to hinder or defeat the ability of a creditor to enforce a claim that, at the time of the transaction, existed or was reasonably foreseeable,

( ii) the ability of the creditor to enforce his or her claim was materially hindered as a result of the transaction, and

( iii) the debtor received no consideration or consideration worth conspicuously less than the benefit conferred by the debtor under the transaction, or

( i) the debtor intended to hinder or defeat the ability of a creditor to enforce a claim that, at the time of the transaction, existed or was reasonably foreseeable,

( ii) the ability of the creditor to enforce his or her claim was materially hindered as a result of the transaction, and

( iii) the transferee knew of the debtor’s intention and intended to assist the debtor.

6( 2) For the purposes of subsection (1), if the transaction involved a corporation purchasing or redeeming shares issued by the corporation, neither receipt of the shares by the corporation nor their surrender by the holder constitutes consideration.

6( 3) For the purposes of determining the intentions of a debtor or a transferee under subparagraph (1)(b)(i) or (c)(i) or (iii), the court may consider

(a) whether the transaction occurred at a time when the debtor or the transferee, as the case may be, knew of the existence of a claim against the debtor or had reasonable grounds to anticipate that a claim would arise in the foreseeable future,

(b) if the transaction was effected by a court order,

( i) whether the debtor failed to disclose to the court in the proceedings under which that court order was made an existing or reasonably foreseeable claim that may be prejudiced by the order or failed to disclose the extent of such a claim, or

( ii) whether the transferee failed to disclose to the court in the proceedings under which that court order was made an existing or reasonably foreseeable claim that may be prejudiced by the order and that was known to the transferee or failed to disclose the extent of such a claim,

(c) whether the value of the consideration received by the debtor was less than the value of the benefit conferred on the transferee,

(d) whether a close relationship existed between the parties to the transaction,

(e) whether the debtor retained the possession, use or benefit of property or value transferred under the transaction,

(f) whether the transaction was entered into in haste,

(g) whether the debtor or the transferee attempted to keep the transaction hidden from creditors or others,

(h) whether the transaction was documented in a manner that would not ordinarily be expected in relation to a transaction of that kind,

(i) whether the debtor was insolvent at the date of the transaction or became insolvent as a result of the transaction,

(j) whether the transferee knew that the debtor was insolvent at the date of the transaction or would likely become insolvent as a result of the transaction, and

(k) any other relevant factor.

Restrictions

7( 1) In this section, “contingent obligation” means an obligation to pay money, transfer property or otherwise give value, the performance of which is contingent on an event that may or may not occur, and includes an obligation under a guarantee or an agreement to indemnify against loss occasioned by the default of another person.

7( 2) The court may make an order in relation to one of the following transactions only if that transaction is also a transaction under paragraph 6(1)(c):

(a) a spousal transaction;

(b) a transaction involving the refusal by a debtor to act under a power of appointment to confer an interest in property on the debtor or the disclaimer of an interest in property before the interest has vested; or

7( 3) The court may make an order in relation to a transaction effected by a court order or by operation of law, other than a spousal transaction, only if that transaction is also a transaction under paragraph 6(1)(b) or (c).

Transactions involving shares or a dividend

8( 1) This section applies to a transaction that consists of the purchase or redemption of its shares by a debtor corporation or the declaration of a dividend by a debtor corporation.

8( 2) If an order is made against a shareholder as transferee, the court may make an order against a director or directors of the corporation, jointly and severally, to take effect if and to the extent that the order against the shareholder is not complied with within six months after the date that the order is made.

8( 3) The court shall not make an order under this section against a director who is not liable in relation to the actions constituting the transaction under any applicable Act or other law governing the corporation that provides for a remedy against a director in relation to a resolution or action authorizing the purchase or redemption of shares or the declaration of a dividend.

8( 4) The court shall not make an order against a shareholder who, in proceedings taken under the Business Corporations Act, the Canada Business Corporations Act (Canada) or another Act, has been ordered to restore to the corporation or to a director of the corporation an amount paid or the value of property distributed under the transaction.

8( 5) The court shall not make an order against a director who, in proceedings taken under the Business Corporations Act, the Canada Business Corporations Act (Canada) or another Act, has been ordered

(a) to restore to the corporation an amount paid or the value of property distributed under the transaction, or

(b) to make a payment to satisfy a right of contribution held by another director who has been ordered to restore to the corporation an amount paid or the value of property distributed under the transaction.

8( 6) If an order is made against a shareholder or a director in relation to a transaction,

(a) the order is not enforceable against that person if the person is subsequently ordered in proceedings under the Business Corporations Act, the Canada Business Corporations Act (Canada) or another Act

( i) to restore to the corporation an amount paid or the value of property distributed under the transaction, or

( ii) in the case of a director, to make a payment to satisfy a right of contribution held by another director who has been ordered to restore to the corporation an amount paid or the value of property distributed under the transaction, and

(b) the court may suspend enforcement of the order until proceedings against that person under the Business Corporations Act, the Canada Business Corporations Act (Canada) or another Act are concluded.

Persons against whom an order may be made

9( 1) The court may make an order against either or both of the following persons:

(a) a transferee who received a benefit from the debtor under the transaction;

(b) subject to subsection (2), a person who has received all or part of the benefit conferred under the transaction from a transferee referred to in paragraph (a) or a subsequent transferee.

9( 2) The court shall not make an order against a person referred to in paragraph (1)(b) if the person provided consideration, the value of the consideration is not conspicuously less than the value of the benefit received and

(a) in the case of a transaction referred to in paragraph 6(1)(a), the person did not know that the benefit derived from a transaction referred to in that paragraph, or

(b) in the case of a transaction referred to in paragraph 6(1)(b) or (c), the person did not know that the benefit derived from a transaction in which the debtor intended to hinder or defeat the ability of a creditor to enforce a claim.

PART 3

CREDITOR TRANSACTIONS

Application

10( 1) Subject to subsection (2), this Part applies to any creditor transaction.

10( 2) If a debtor confers a benefit on a creditor and the value of the benefit exceeds the value of the obligation satisfied or secured, this Part applies to the portion of the benefit that satisfies or secures the obligation.

Applicants

11( 1) Subject to subsection (2), an application for an order under this Part may be made by a creditor whose claim existed at the date of the creditor transaction that is the subject of the application.

11( 2) If a claim is contingent on a future uncertain event, the creditor may apply for an order only if, at the date of the creditor transaction, it was reasonably foreseeable that the event would occur.

Grounds for an order

12( 1) In this section, “creditor” means a person who has a claim and includes a surety or guarantor for the obligation owed to the creditor.

12( 2) Subject to section 14, the court may make an order in relation to a creditor transaction if

(a) the creditor who received the benefit conferred under the creditor transaction was not dealing at arm’s length with the debtor, and

(b) the debtor was insolvent at the time of the creditor transaction, became insolvent as a result of the creditor transaction or entered into the creditor transaction in circumstances in which the debtor was demonstrably at risk of insolvency and the debtor became insolvent within six months after the date of the creditor transaction.

12( 3) Persons who are related to each other are, in the absence of evidence to the contrary, deemed not to deal with each other at arm’s length while they are related.

12( 4) It is a question of fact whether persons not related to each other were, at a particular time, dealing with each other at arm’s length.

12( 5) Persons are related to each other when they are related to each other for the purposes of the Bankruptcy and Insolvency Act (Canada).

Deemed arm’s length transactions

13( 1) The following definitions apply in this section.

“clearing house” means a clearing house as defined in the Bankruptcy and Insolvency Act (Canada). (chambre de compensation)

“clearing member” means a clearing member as defined in the Bankruptcy and Insolvency Act (Canada). (membre de la chambre de compensation)

“eligible financial contract” means an eligible financial contract as defined in the Bankruptcy and Insolvency Act (Canada). (contrat financier admissible)

“financial collateral” means financial collateral as defined in the Bankruptcy and Insolvency Act (Canada). (garantie financière)

“margin deposit” means a margin deposit as defined in the Bankruptcy and Insolvency Act (Canada). (dépôt de couverture)

13( 2) Persons are deemed to be dealing with each other at arm’s length with respect to the following transactions:

(a) a margin deposit made by a clearing member with a clearing house; and

(b) a transfer, charge or payment made in connection with financial collateral and in accordance with the provisions of an eligible financial contract.

Restrictions

14( 1) If a debtor satisfies an obligation that is secured by a security interest in property of the debtor, the court may make an order only if the rights of unsecured creditors of the debtor have priority over the security interest.

14( 2) The court shall not make an order in relation to a creditor transaction

(a) in which a debtor gives a secured creditor a security interest in substitution for another security interest that is of equivalent value and that was given to secure the same obligation, or

(b) that is effected by a court order or by operation of law.

Persons against whom an order may be made

15 The court may make an order against either or both of the following persons:

(a) a creditor who received a benefit from the debtor under the creditor transaction;

(b) a person who has received all or part of the benefit referred to in paragraph (a) in a transaction with

( i) the creditor referred to in paragraph (a), if the person was not dealing at arm’s length with the creditor, or

( ii) a transferee who received all or part of the benefit from the creditor referred to in paragraph (a) or a subsequent transferee, if the parties to each transaction were not dealing at arm’s length.

PART 4

ORDERS

Orders under Part 2

16( 1) In granting relief under Part 2, the court may make any order it considers necessary

(a) to make available to the applicant the net value conferred on the transferee under the transaction to the extent of the applicant’s claim against the debtor, or

(b) to otherwise restore the applicant’s ability to enforce the claim.

16( 2) Despite subsection (1), the court may refuse to make an order or adjust the terms of an order in recognition of the following:

(a) expenditures and non-monetary investments made by the transferee that have increased the value of property received by the transferee under the transaction or that have generated income for the transferee through the use of property or of a licence, quota, right to use or right to payment received by the transferee under the transaction; and

(b) actions taken by the transferee in reasonable reliance on the finality of the transaction.

16( 3) The court shall not refuse to make an order or adjust the terms of an order under subsection (2) if the debtor intended to hinder or defeat the creditor’s ability to enforce the claim and the transferee knew of this intention.

Orders under Part 3

17( 1) In granting relief under Part 3, the court may make any order it considers necessary to set aside the creditor transaction.

17( 2) Despite subsection (1), the court may adjust the terms of an order in recognition of expenditures and non-monetary investments made by the transferee that have increased the value of property received under the creditor transaction.

Forms of orders

18( 1) The orders that may be made by the court under Part 2 or 3 include, but are not limited to, the following:

(a) an order revesting in the debtor, or vesting in another person, property that is the subject of the transaction or the proceeds of the property;

(b) if an order is made under paragraph (a), an order in favour of the transferee for recovery of an identified sum against the debtor or other person;

(c) an order directing that property that is the subject of the transaction or the proceeds of the property be sold and the money realized on the sale distributed as the court directs;

(d) an order requiring the transferee to pay a sum equivalent to the value of property or other benefits received under the transaction;

(e) in the case of an order made under Part 2, an order requiring the transferee to pay a sum in recognition of income earned by the transferee through the use of property or of a licence, quota, right to use or right to payment received under the transaction;

(f) an order directing the release or discharge of any obligation incurred, or security or guarantee given, by the debtor under the transaction;

(g) an order reviving any obligation or security released or discharged by the debtor under the transaction;

(h) an order setting aside a designation in favour of a beneficiary;

(i) an order declaring that property that would otherwise be exempt property is subject to judgment enforcement measures;

(j) an order setting aside or varying a court order by which a transaction was effected;

(k) an order appointing a receiver to take possession of and deal with property in the manner directed; and

(l) an order granting an injunction against the debtor or another person.

18( 2) If enforcement action is being taken in relation to the debtor under the Enforcement of Money Judgments Act, an order shall be in the terms or subject to the conditions that the court considers necessary to accommodate the interests of instructing creditors under that Act.

Secured creditors

19( 1) If a creditor whose claim is secured by a security interest in property of the debtor applies for an order, the court may make an order only with respect to the amount of the claim that cannot be satisfied through enforcement of the security interest, either because the amount of the claim exceeds the value of the property against which the security interest may be enforced or because the rights of other secured creditors have priority over the security interest.

19( 2) If a debtor transfers property that is subject to a security interest and another Act provides that the security interest is subordinated to the interest of the transferee or that the transferee takes the property free of the security interest, the following applies:

(a) the property is not to be considered property against which the security interest may be enforced for the purposes of subsection (1), whether the application relates to that transfer or to another transaction; and

(b) if an order is made under this Act in relation to the property transferred, the secured creditor may not assert a right to the property on the basis of the security interest, whether the application was made by the secured creditor or by another person.

Property subject to a security interest or bound by a judgment

20( 1) The court may make an order in relation to a transaction that involves property that is subject to a security interest or bound by a judgment even if under another Act

(a) the security interest or judgment is subordinated to the interest of the transferee, or

(b) the transferee takes the property free of the security interest or judgment.

20( 2) If a transaction involves property that is subject to a security interest at the date of the transaction, the court may make an order only if, and only to the extent that, the transaction reduces the amount or value of property that would have been available to unsecured creditors under judgment enforcement measures if the transaction had not occurred.

20( 3) In determining under subsection (2) whether or not property would have been available to unsecured creditors

(a) no regard is to be had to whether or not the property is exempt property, and

(b) if the security interest is subordinated to the interest of the transferee or the transferee takes free of the security interest, the security interest is to be considered unenforceable against unsecured creditors.

Exempt property

21 If an order is made in relation to a transaction in which the debtor transferred exempt property to the transferee and the debtor continues to use the property, the court

(a) may suspend enforcement of the order until the debtor ceases to use the property, and

(b) if the enforcement of an order is suspended under paragraph (a), may order that a judgment be registered against the transferee or the property of the transferee.

Transactions effected by court order

22 If a transaction is effected by a court order, the court may make an order under this Act even if another court made the order effecting the transaction.

Transactions involving shares or a dividend

23 An order made against a director under subsection 8(2) shall require the director to pay a sum of money equivalent to the amount paid by the corporation under the transaction, and the provisions of this Part, other than subsection 18(2), do not apply.

Guarantees and indemnities

24 If an order is made in relation to a creditor transaction that had the effect of discharging an obligation under a guarantee or indemnity or an obligation secured by a guarantee or indemnity, the discharged obligation is revived to the extent that the transaction is set aside, subject to any defences that the person who owes the obligation may otherwise be entitled to assert.

Subsequent transferees

25 This Part applies, with any necessary modifications, to an order made against a person referred to in paragraph 9(1)(b) or 15(b).

PART 5

GENERAL PROVISIONS

Injunctions

26( 1) Whether or not an application for an order has been made under Part 2 or 3, the court may grant an injunction to a person who is, or who may become, entitled to apply for an order.

26( 2) In granting an injunction, the court may make any order against the debtor or another person that the court considers necessary to

(a) preserve the benefit of any order that may be made,

(b) allow an appropriate order to be made, or

26( 3) Any interested person may apply to the court to vary or terminate an order made under this section.

Limitation periods

27( 1) Subject to subsections (2) and (3), no application for an order is to be commenced more than one year after the date of the transaction that is the subject of the application.

27( 2) If the transferee conceals or assists in the concealment of the transaction or of material facts, the one-year period commences at the time that the applicant knew of the transaction or the material facts, but no application is to be commenced more than five years after the date of the transaction.

27( 3) If the debtor becomes bankrupt before the end of the one-year period, the debtor’s trustee in bankruptcy may bring an application if the transaction occurred during the period that begins on the day that is one year before the date of bankruptcy and that ends on the date of bankruptcy, but no application is to be commenced by the trustee more than one year after the date of bankruptcy.

PART 6

TRANSITIONAL PROVISION, REPEAL AND
COMMENCEMENT

Statute of Elizabeth

28 The Act of the Parliament of England known as the Statute of Elizabeth, 13 Eliz. 1, c.5 (1571), is not in force in New Brunswick.

Repeal

29 The Assignments and Preferences Act, chapter 115 of the Revised Statutes, 2011, is repealed.

Commencement

30 This Act or any provision of it comes into force on a day or days to be fixed by proclamation.