Details: Category: Obligations and Contracts

FRAUDULENT PREFERENCES AND TRANSFERS

Insolvency

TRANSFER

 Includes the sale and every other and different modes of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift, or security

WHEN PREFERENTIAL TRANSFER EXISTS

 It is a parting with the property of the insolvent for the benefit of a creditor with the result that the estate of the insolvent is diminished and other creditors are prejudiced.

WHEN FRAUDULENT PREFERENCE EXISTS

It is a disposition of property by the debtor under the following conditions:
1.   He is insolvent or is in contemplation of insolvency;
2.   The transaction is made within 30 days before the filing of the petition for insolvency;
3.   It is made with a view to giving preference to any creditor;
4.   The person receiving a benefit has reason to believe that the debtor is insolvent and that the transfer is made in order to defeat or prejudice the rights of other creditors.

WHEN FRAUDULENT TRANSFER EXISTS

 It is any disposition of property made by the insolvent within one month before the filing of the petition for insolvency, except for valuable consideration in good faith.

EFFECT OF FRAUDULENT TRANSFER

1.   If made within 30 days before the filing of insolvency proceedings, the transfer is void.
2.   If made after the filing of insolvency proceedings, it is rescissible for being in fraud of creditors.
3.   Another remedy of the creditors is to file a criminal complaint against the insolvent debtor.

IS THERE A PRESUMPTION OF FRAUD?

THERE IS A REBUTTABLE PRESUMPTION THAT A CONVEYANCE IS FRAUDULENT WHEN:
1. It is not made in the usual and ordinary cause of business of the debtor; or
2. It is made under a confession of judgment.

FRAUDULENT PREFERENCES AND TRANSFERS- Act 1956

SECTION   70.      If   any   debtor,   being   insolvent,   or   in contemplation of insolvency, within thirty days before the filing of a petition by or against him, with a view to giving a
preference to any creditor or person having a claim against him or who is under any liability for him, procures any part of his property to be attached, sequestered, or seized on execution,   or   makes   any   payment,   pledge,   mortgage, assignment, transfer, sale, or conveyance of any part of his property,   either   directly   or   indirectly,   absolutely   or conditionally,   to   anyone,   the   person   receiving   such payment, pledge, mortgage, assignment, transfer, sale, or conveyance,   or   to   be   benefited   thereby,   or   by   such
attachment or seizure, having reasonable cause to believe that such debtor is insolvent, and that such attachment, sequestration,    seizure,    payment,    pledge,    mortgage, conveyance, transfer, sale, or assignment is made with a view to prevent his property from coming to his assignee in insolvency, or to prevent the same from being distributed
ratably among his creditors, or to defeat the object of, or in any way hinder, impede, or delay the operation of or to evade any of the provisions of this Act, such attachment,
sequestration,    seizure,    payment,    pledge,    mortgage, transfer, sale, assignment, or conveyance is void, and the assignee, or the receiver, may recover the property, or the
value thereof, as assets of such insolvent debtor. If such payment, pledge, mortgage, conveyance, sale, assignment, or transfer is not made in the usual and ordinary course of
business of the debtor, or if such seizure is made under a judgment which the debtor has confessed or offered to allow, that fact shall be prima facie evidence of fraud. Any
payment, pledge, mortgage, conveyance, sale, assignment, or transfer of property of whatever character made by the insolvent within one month before the filing of a petition in
insolvency   by   or   against   him,   except   for   a   valuable pecuniary consideration made in good faith, shall be void. All assignments, transfers, conveyances,   mortgages,   or
encumbrances of real estate shall be deemed, under this section, to have been made at the time the instrument conveying or affecting such realty was filed for record in the
office of the register of deeds of the province or city where the same is situated.

FRAUDULENT PREFERENCES AND TRANSFERS- Insolvency