Abakhan & Associates Inc. v. Braydon Investments Ltd. 2009 BCCA 521

Abakhan & Associates Inc. was the trustee in bankruptcy for Botham Holdings Ltd. Assets were transferred from Botham to Braydon Investments Ltd. prior to bankruptcy. An application was made for a declaration that the transfer of assets was of no force or effect as against the trustee in bankruptcy.

At trial, the judge held that since one purpose of the asset transfer was to put Botham’s assets out of reach of its creditors, the transfer met the test for a “fraudulent conveyance”. This was the case, despite the fact that the principal of Botham had no dishonest intent (or mala fides) and acted on the advice of professionals to effect a legitimate business purpose with the transfer.

On appeal, the Chief Justice confirmed the decision below. Botham was trying to obtain the tax advantages associated with a s.85 rollover of assets (pursuant to the Income Tax Act) while limiting liability for the business venture by stripping out all of the assets. The Court of Appeal confirmed that it is the effect of the transfer, not the dishonest intent of the transferor that is operative.

An application for leave to appeal to the Supreme Court of Canada has been made. We will report on the results of that application in a subsequent edition of the BC Business Litigation Report.