Chasing fraudsters is never easy. They always appear to be one step ahead and creditors, in addition to having to prove the fraudulent transaction, have to also find the money or assets and be able to recover them. Chasing fraudsters or assets into another country just adds one more hurdle (and potentially more) to recovery for clients. Thus, understanding the legal system across the border before undertaking any recovery steps becomes that much more important to legal advisors. The Canadian legal system offers creditors a number of recovery tools, the more useful of which are discussed in this brief primer.
First, an outline of the legal system in Canada. Canada has a Federal system (1 Federal government, 10 Provinces, and 3 Territories) with a separation of powers. Property and civil rights (the rubric under which creditors' rights falls) is within the purview of the Provinces (and Territories) and the Federal government has power over bankruptcy and insolvency as well as criminal law. This means that there are different anti-fraud regimes across Canada and a wide range of potential options.
Second, understanding how to use the law to overcome the common impediments to chasing fraudsters: proving the fraud, finding the assets or money, and the cost of the effort, is key to successful recovery.
At the Provincial and Territorial Level
Generally speaking, each Province and Territory has legislation governing the ability to overturn fraudulent conveyances (transactions for little or no value) and preferential payments to creditors (transactions where one creditor is preferred at the expense of others). For example in Ontario, there is a Fraudulent Conveyances Act and a Assignment and Preferences Act. Ontario also has the Bulk Sales Act to provide relief from the "midnight flip" and we have a statute called the Absconding Debtors Act, designed to, not surprisingly, provide remedies against absconding debtors. Other Provinces have similar though not identical regimes. Together they represent an effort to provide creditors with the means to overturn improper transactions and return value to creditors.
In theory, the Provincial statutes provide creditors an opportunity to seek to overturn transactions with the help of the court. But in practice, they are often challenging remedies to utilize successfully as the onus falls completely on the aggrieved creditor. Unless the intent to defraud is presumed by statute, the creditor must prove the intent to defeat, hinder, delay or prejudice (as the particular statute may require) creditors. That is more difficult in practice than would be thought in theory. The key problem always revolves around finding or being able to find the requisite evidence to prove the intent. Creditors are left to the usual discovery rights available to ordinary litigants (such as oral and document discovery in due course of the litigation), meaning finding the intent (and thereafter the location of the money or assets) is potentially expensive and potentially pointless if the fraudster does not cooperate. Still, the remedies are available and often used successfully. In fact, in Ontario and at the Supreme Court level, the use of summary judgment proceedings has been acknowledged as a possible means of chasing fraudster where sufficient facts were present to support a finding of fraudulent activity — potentially reducing the cost and time needed to obtain a judgment against a fraudster.
In recent years, there have been efforts to harmonize anti-fraud legislation at the provincial level and a number of studies and reports have been prepared to propose such harmonization. A Uniform Reviewable Transactions Act has been proposed by the Uniform Law Conference of Canada, but to date has not been adopted by any of the Provinces or Territories. Hopefully, uniformity will prevail at some point in the future.
At the Federal Level
At the Federal level, there are criminal sanctions for fraudsters in the Criminal Code of Canada, as well as the possibility of monetary restitution orders for creditors/victims of the fraud. Recently, there have been a number of high profile cases where the fraudster has received a significant sentence (by Canadian standards) as well as being hit with a restitution order (an order to pay back some or all of the money fraudulently obtained).
In the context of a bankruptcy proceeding under the Bankruptcy and Insolvency Act, the trustee in bankruptcy is empowered to void preferences and transfers at under value (i.e. fraudulent conveyances). These powers tend to be stronger and more useful than their provincial counter-parts because: (1) they apply across Canada; and (2) the period where no intention needs to be proved is longer, or in certain circumstances, there is no requirement at all to prove intent. Moreover, a trustee in bankruptcy will also have the ability to utilize any provincial legislation that may be available to creditors. These avoidance powers, plus the very broad and powerful investigative powers of a bankruptcy trustee, give a bankruptcy trustee far greater ability to pursue fraudulent transaction over ordinary creditors. Lastly, some fraud-related debts are not discharged at the completion of a bankruptcy case — so where the fraudster tries to use bankruptcy to get away from liability, he or she may find that they cannot simply do away with the debts through a bankruptcy. As result, bankruptcy has become a vehicle of choice to pursue fraudulent activities.
Receiverships
In addition to the above, court appointed receiverships (either Federally appointed under the BIA or via provincial legislation) lend well to chasing fraudsters. Court appointed receivers are usually given the power to conduct in-depth investigations with the power to seize records and examine parties that may have a connection with or knowledge of the fraudulent activities and they are given the powers to overturn transaction. In addition to the powers provided, receivers have greater stature in court than an ordinary litigant and generally receives greater deference when taking a position that a transaction is fraudulent. And, a receiver may be more likely to secure the aid and recognition of a foreign court to chase assets across a Provincial or national border — so much so, that where there are cases of suspected fraud, seeking the appointment of a receiver is an extremely viable option for creditors.
So Chasing Fraudsters in Canada?
Less facetiously, there are a number ways fraudsters can be chased and assets recovered in Canada. Depending on the circumstances and the location of the fraudster and assets, different options may be available — with the aforementioned bankruptcy and receivership routes being the most viable means of achieving positive results for creditors.