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This Act is current to July 11, 2018
See the Tables of Legislative Changes for this Act’s legislative history, including any changes not in force.

Fraudulent Preference Act

[RSBC 1996] CHAPTER 164

Contents
1Definition
2Instruments preferring creditors
3Transfers which prejudice creditors
4Transfers having effect of preference
5What transactions to be deemed preferential
6Sales and transfers in good faith
7Following proceeds of property fraudulently transferred
8Conveyances void as against registered judgment
9Setting aside fraudulent conveyances
10Determination of disputed questions
11Certificate of proceedings
12Costs in discretion of court

Definition

1   In sections 3, 4 and 5, "creditor" includes

(a) a surety and the endorser of a promissory note or bill of exchange who would, on payment by that person of the debt, promissory note or bill of exchange for which the suretyship was entered into or endorsement was given, become a creditor of the person giving the preference within the meaning of the sections, and

(b) the beneficiary of a trust or other person to whom liability is equitable only.

Instruments preferring creditors

2   If a person in insolvent circumstances, unable to pay the person's debts in full, or knowing that the person is on the eve of insolvency, voluntarily or by collusion with a creditor, agrees to a judgment against the person, with or without time to pay, or gives a power of attorney to do so, with intent to defeat or delay the person's creditors wholly or in part, or to give one or more of the person's creditors a preference over other creditors, or over some of them, the judgment or power is void against the creditors of the person.

Transfers which prejudice creditors

3   Subject to section 6, a disposition of property by a person at a time when the person is in insolvent circumstances, is unable to pay the person's debts in full, or knows that he or she is on the eve of insolvency, is void as against an injured creditor, if made

(a) with intent to defeat, hinder, delay or prejudice creditors or some of them, and

(b) to or for a creditor with intent to give the creditor preference over other creditors or some of them.

Transfers having effect of preference

4   Subject to section 6, if, without intent, the disposition gives the creditor a preference over some or all of the other creditors, section 3 (b) also applies

(a) in a proceeding brought to set aside the disposition within, if there is a document evidencing the disposition registered under an Act, 60 days after registration, or, in other cases, 60 days after the disposition, as against the creditor injured, or

(b) if the debtor, within 60 days after the disposition, makes an assignment for the benefit of the debtor's creditors, as against the assignee or a creditor authorized to take proceedings to set the disposition aside.

What transactions to be deemed preferential

5   (1) A disposition is deemed to give a creditor a preference over the other creditors under section 4, if the creditor is given, recovers or is placed in a position to recover payment, satisfaction or security for all or part of the debtor's indebtedness, greater proportionately than could be recovered by unsecured creditors generally, or on the unsecured portion of the liabilities, out of assets of the debtor left available to judgment.

(2) For the purposes of subsection (1)

(a) a preference is not dependent on the intent or motive of the debtor or on the disposition being entered into voluntarily or under pressure, and

(b) no pressure by a creditor, or want of notice to the creditor alleged to have been preferred of the debtor's circumstances, or of the effect of the disposition, protects it except as provided by section 6.

Sales and transfers in good faith

6   (1) Nothing in sections 3, 4 and 5 applies, if the money paid, or the property disposed of bears a fair and reasonable relative value to the consideration, to a sale in good faith, to a payment made in the ordinary course of business to innocent persons, to a payment to a creditor, or to a disposition in good faith of property of any kind made in any of the following circumstances:

(a) in consideration of a present actual payment in good faith in money;

(b) by way of security for a present actual advance of money in good faith;

(c) in consideration of a present actual disposition in good faith of any property.

(2) In case of a valid sale of property, a payment or transfer of some or all of the consideration by the purchaser to a creditor of the vendor, under circumstances which would render void the payment or transfer by the debtor personally and directly, the payment or transfer, valid as respects the purchaser, is void as respects the creditor to whom it is made.

(3) In case a payment has been made which is void under this Act, and valuable security was given up in consideration of the payment, the creditor is entitled to have the security restored or its value made good to the creditor before, or as a condition of, the return of the payment.

(4) Nothing in this section prevents a debtor providing for any payment of money to a creditor if the creditor, because of the payment, has lost or been deprived of or has in good faith given up a valid security which the creditor held for the payment of the debt so paid, unless the value of the security is restored to the creditor, or the substitution in good faith of one security for another security for the same debt, so far as the debtor's estate is not lessened in value to the other creditors.

(5) Nothing in this section invalidates a security given to a creditor for an existing debt if, because of the giving of the security, an advance in money is made to the debtor by the creditor in the belief in good faith that the advance will enable the debtor to continue the debtor's business and to pay the debtor's debts in full.

Following proceeds of property fraudulently transferred

7   In the case of a disposition of any property which in law is invalid against creditors, if the person to whom the disposition was made has disposed of, realized or collected all or some of the property, the money or other proceeds or the value of it may be seized or recovered in an action by a person who would be entitled to seize and recover the property if it had remained in the possession or control of the debtor or of the person to whom the disposition was made.

Conveyances void as against registered judgment

8   A disposition which, by the Fraudulent Conveyance Act or this Act or by any Act in force in British Columbia relating to conveyances prejudicial to creditors, is declared to be void, is void as against the lien and charge created by the registration in any land title office of a judgment under the Court Order Enforcement Act.

Setting aside fraudulent conveyances

9   (1) If

(a) a judgment creditor alleges that the debtor or person who has to pay has made a conveyance or other disposition of any of that person's land, which conveyance or other disposition is void, as being made to defeat, hinder, delay, prejudice or defraud creditors, or

(b) a creditor or assignee for the benefit of creditors alleges that a disposition is void under sections 2 to 6,

it is not necessary to institute an action to set aside the disposition.

(2) In the circumstances described in subsection (1), an application may be made to the Supreme Court by the judgment or other creditor or assignee or person entitled to the money, calling on the judgment debtor or person who is to pay, and the person to whom the conveyance or other disposition has been made or who has acquired any interest under it, to show cause

(a) why the land, or a competent part of it, should not be sold to realize the amount payable under the judgment, or

(b) why the disposition or payment should not be set aside and the property returned or otherwise dealt with as the court may direct.

(3) In an application under this section, a judgment creditor may claim to be entitled to register the judgment against

(a) the land in respect of which the application is made, or

(b) the judgment debtor's or another person's interest in the land.

Determination of disputed questions

10   (1) On an application under section 9, the proceedings may be brought either in a summary way or by the trial of an issue, or by inquiry before an officer of the court, or by an action or otherwise, as the court believes necessary or convenient, for the purpose of ascertaining the truth of the matters in question, and whether the land, or the debtor or other person's interest in it, is liable for the satisfaction of the judgment.

(2) On application by a judgment creditor under section 9, the court may order that the judgment creditor is entitled to register the judgment against

(a) the land in respect of which the application is made, or

(b) the judgment debtor's or another person's interest in the land.

Certificate of proceedings

11   (1) A notice of application for an order under section 9 may contain a description of the land in question, and on filing it with the proper officer, signed by the applicant's solicitor, a certificate of a court proceeding may be issued for registration.

(2) If a motion under subsection (1) is refused in whole or in part, a certificate for registration of the order may be issued.

Costs in discretion of court

12   The costs of and incident to proceedings authorized by sections 9, 10 and 11 are in the discretion of the court.