Archive for ‘Debtors’

February 23, 2012

Can a Joint Tenant’s Right of Survivorship be Trumped by the Bankruptcy of an Estate?

Recently, a bank challenged the right of a spouse to take title to property held by her and her husband as joint tenants where the estate of the husband was later declared bankrupt.  Of course, as joint tenants, the property devolved to the wife through her right of survivorship.  The bank tried to employ s.  96 of the Bankruptcy and Insolvency Act (Canada) to challenge the spouse’s interest.  Section 96 permits a Court to declare void a transfer undervalue made between non-arm’s length parties within one year prior to bankruptcy.  This is a change from the old Act where the challenging party was required to show an intention to prefer parties over other creditors.  The element of intention has now been removed.

The bank took the position that the interest a joint tenant takes through survivorship is a “transfer” and is therefore caught by s. 96.  The Court disagreed, holding that on death a deceased does not dispose or part with property held in joint tenancy.  Rather his or her interest is extinguished, leaving nothing to transfer.  The Court also noted that assets that vest in a survivor in joint tenancy do not form part of the deceased’s estate.

The Court also reviewed the issue of whether the interest taken by the surviving spouse was “undervalue”.  The Court held that it was not, given the nature of a joint tenancy and in particular a joint tenancy between spouses.  The Court found that the law presumes that each spouse contributed as much as the other to the acquisition of the property whether by way of money or money’s worth.  In addition, each acquired an inchoate right to sole survivorship at the time the property was acquired, which right crystallized at the moment of the other joint tenant’s death.

The bank also contended that the wife held the property as constructive trustee for the bank, claiming unjust enrichment in the spouse.  The Court found that the elements of unjust enrichment had not been met as there was (1) no enrichment (2) no corresponding deprivation and (3) no absence of any juristic reason for the enrichment.  The Court held that no right in the property was acquired as of the date of death but was acquired at the time the property was purchased.  There was mutual consideration between the spouses as each spouse acquired the chance of acquiring the whole if he or she survived but risked that he or she might predecease the other spouse and to lose all rights in the property.  As a result, as there was consideration, there was no “enrichment”.  As well, there was no deprivation as the property never devolved to the estate of the deceased spouse because it was automatically vested in the surviving spouse.  Finally, the Court held that the operation of a joint tenancy at law in and of itself is a juristic reason for any perceived enrichment.

The timing here is important as death and the devolution of the property to the spouse occurred before bankruptcy.  Had the deceased been bankrupt prior to death, the bankruptcy would have severed the joint tenancy and there would have been a different result.

Re Cameron

February 9, 2012

Appointment of a Receiver – Do Trust “Powers” Constitute “Property”?

The British Columbia Court of Appeal recently considered the issue of whether certain powers over property in a discretionary estate trust could be considered to be “property” over which a receiver of a debtor’s personal assets is entitled to take control.  The issue was whether the debtor, who was a discretionary beneficiary of the trust and its Protector (meaning he had the ability to appoint a trustee), had a “property interest” in the trust.  The argument in favour of the receiver was that the debtor had discretion or power over the appointment of a trustee (which could be himself) such that he had the ability to direct discretionary payments from the trust if he so chose.  The Court rejected this rationale, finding that “powers” over the administration of trust properties are not equivalent to property itself and therefore do not fall within the authority of a receiver.

Quest Capital Corp. v. Longpre