CANADA Law and Practice Contributed by: Clifton Prophet, David F W Cohen, Virginie Gauthier, Thomas Gertner and Kate Yurkovich, Gowling WLG
Transaction at Undervalue A transaction at undervalue (TUV) occurs where the debtor was insolvent at the time the transaction occurred, or became insolvent as a result of the trans - action, and the intent of the debtor was to defeat, delay or defraud its creditors. For a transaction to constitute a TUV, it must have occurred: • if the parties are not related, within one year of the commencement of the bankruptcy and while the debtor was insolvent, with intent to defeat credi - tors; or • if the parties are related, within: (a) one year of the commencement of the bank - ruptcy, without proof of insolvency at the time of the transaction and without demonstrating intent to defeat creditors; or (b) five years of the commencement of the bank - ruptcy if the debtor was insolvent at the time of the transaction or the transaction was intended to defeat creditors. Where a TUV occurs, a court can set aside the trans - action, or order the recipient of the payment to pay the difference between what it paid for the property and the actual fair market value of that property. Improper Payments by the Bankrupt Corporation Under the BIA, a court may inquire into whether the following payments made by a debtor were made at the time when the corporation was insolvent (or such payment rendered the corporation insolvent): • the payment of a dividend (other than a stock dividend) or redemption or purchase for cancella - tion of any of the shares of the capital stock of the corporation; and • the payment of termination, severance or incen - tive pay, or other benefits to a director, officer or manager of the corporation. If a court finds that such payments have been made improperly, judgment may be made against the directors of the debtor requiring repayment of such amounts.
Claims in negligence can be brought against officers of a corporation for a breach of the statutory duty of care. Officers will not be in breach of their duty of care if they can show that they acted prudently and on a reasonably informed basis. These claims are also sub - ject to the rebuttable presumption that directors and officers act on an informed basis, in good faith and in the best interests of the corporation (the business judgement rule). 7.4 Other Consequences for Directors and Officers It is common in Canada for directors and officers of a corporation to be indemnified by the corporation for costs or expenses incurred due to proceedings that result from such director or officer’s relationship with the corporation. This indemnity is permitted under the provisions of Canadian business corporations stat - utes. Director and officer liability insurance is common to protect directors and officers against risks arising from discharging their duties to the corporation. A preferential transaction occurs where one creditor receives payment over another creditor before the ini - tial bankruptcy event, or the date the CCAA proceed - ings were commenced, with the effect of the debtor preferring one creditor over another. One of the following circumstances must exist: • if the debtor and creditor are not related, the pay - ment must have been made within three months of the initial bankruptcy event; or • if the parties are related, the payment must have been made within 12 months of the initial bank- ruptcy event. A preferential transaction is void and will be set aside by the court. 8. Setting Aside or Annulling a Transaction 8.1 Circumstances for Setting Aside a Transaction or Transfer Preference
108 CHAMBERS.COM
Powered by FlippingBook