Protecting assets before declaring bankruptcy? | ScriptaLegal
Personal Law Business Law Packages & Subscriptions
Français About us Create a free account Log in
Interactive legal guides Legal frequently asked questions Legal blog Videos
ONLINE LEGAL DOCUMENTS
Legal blog > Company > Protecting your assets before declaring bankruptcy?

Protecting your assets before declaring bankruptcy?

Even though the company did not decrease its assets, it "weakened" it when it sold a tangible asset in exchange for volatile values. By selling the building, the company not only acted to defraud the creditor, but also caused harm to them.

«The rich have more left when they are bankrupt than the poor in full prosperity»
Philippe Bouvard

It frequently happens that a debtor in difficulty thinks of protecting their assets before declaring bankruptcy, without any further formalities.

A company that owns three properties grants a second-ranking mortgage of $190,000 on all three properties to a creditor. After a few years, under the pretext of improving its financial situation, the company obtains a discharge of one of its properties from the mortgage creditor in exchange for a payment of $60,000. In the following months, the company sells the said property to its shareholders at a fair and commercially reasonable price. With the proceeds from the sale, the company repays the mortgages on the property as well as two ordinary debts for which the three shareholders of the company had provided personal guarantees. In the following months, the company declares bankruptcy.

The mortgage creditor who granted the discharge applies to the Court* and requests that the sale be declared unenforceable against them and that the amounts paid to the ordinary creditors be returned to them. The Court concludes that, even though the sale was made at a fair and commercially reasonable price, the shareholders "sought to their own advantage" to the detriment of the mortgage creditor.

Although the company did not decrease its assets, it "weakened them when it sold a tangible asset in exchange for volatile values (such as money)". This is the case even if the legal transaction involved valid consideration. "By selling the property, the company not only acted fraudulently towards the creditor, but also caused harm to them." For these reasons, the shareholders are ordered to reimburse the mortgage creditor for the amounts paid to the ordinary creditors.

In attempting to enrich a close associate or a creditor at the expense of other creditors, the debtor often ends up impoverishing themselves even further.

*CA 500-09-013326-038, 2004-11-08

François Forget, notary and legal advisor as well as the entire Notaire-Direct team, are at your service to ensure the preparation of your legal documents and answer all your legal questions.
Removal of an executor
Me François Forget - July 22, 2010
The testator's last wishes are therefore the only keys that definitively open or close the door to contesting a...
Responsibility in not disclosing that one is a carrier of genital herpes
Me François Forget - October 31, 2008
Transparency is supposed to be, nowadays, the mantra of all relationships, both professional and romantic, yet...
Can a landlord require the tenant to reimburse for the increase in insurance premium?
Me François Forget - March 22, 2008
Even if the tenant's activity does not deviate from the intended use of the premises as specified in the lease,...

This browser does not support this kind of file. Please download the file to view it: Download the file