Category: Collections and Mortgage Recovery

What is garnishment?

Garnishment is a legal process often initiated when individuals default on their financial obligations. Garnishment orders allow creditors to seize assets – typically a person’s wages – from third parties. These orders can also be used to access funds in a debtor’s bank account. This financial recourse is usually pursued by creditors when they have exhausted other means of debt collection. In most cases, garnishment can only be sought after a creditor has obtained judgment against a debtor. However, in some instances, like with debts owed to the Canada Revenue Agency (CRA), garnishment can occur without the necessity of obtaining a court order.

Who can seek an order for wage garnishment?

Various types of creditors and institutions can obtain a garnishment order to recover the money owed to them. These entities encompass a wide range of financial institutions and government bodies, including credit card companies, collection agencies, government agencies (such as the Family Responsibility Office or CRA), entities responsible for collecting student loans, payday lenders, banks, and private lenders.

To what extent can wages be garnished?

The extent to which wages can be garnished varies based on the type of debt and the jurisdiction in which you reside. Generally, if someone owes debt in Ontario, the maximum percent of their wages that can be garnished is 20%. However, when it comes to the enforcement of an order for support or maintenance, a maximum of 50% of a person’s wages can be garnished. Ultimately, a court has the ability to determine the amount to be garnished based on each individual’s finances.

What cannot be garnished?

Not all types of income are subject to wage garnishment. The Ontario Works Act, provides that basic financial assistance is not subject to garnishment, attachment, execution, or seizure. This safeguard ensures that individuals who are already in vulnerable financial situations can maintain access to essential support. Similarly, government pension income, such as the Canada Pension Plan and Old Age Security, is shielded from garnishment from standard creditors. However, it should be noted that such income can be seized by the CRA.

Can you stop a garnishment?

The short answer is no. One of the only ways to stop a wage garnishment order is to pay off the debt. Otherwise, if your financial situation calls for it, you can make a consumer proposal or file for bankruptcy, both of which create an automatic stay of proceedings.

Conclusion

Garnishment is a legal process implemented to facilitate the repayment of debts when other avenues have been exhausted. It is a tool used by creditors and government agencies. The regulations governing it can vary by jurisdiction and the type of debt. Understanding the limits on garnishment and the protections in place for certain types of income can help individuals navigate the complexities of debt repayment and maintain their financial stability during challenging times.

For more information regarding Bankruptcy, Collections, Fraud, and/or Trusts related topics, please contact Hyland Muirhead at Devry Smith Frank LLP at (416) 446-5092 or hyland.muirhead@devrylaw.ca.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.”

This blog was co-authored by Articling Student, Toni Pascale.

In the recent case of Ontario Securities Commission v. Camerlengo Holdings Inc., 2023 ONCA 93, the Ontario Court of Appeal (ONCA) determined that when property is conveyed with a general intent to defraud creditors, the transfer can be contested by subsequent creditors, irrespective of their creditor status at the time of the transaction.

Background

The personal respondents, Fred and Mirella Camerlengo, are spouses who purchased a family home in 1988 as joint tenants. Fred is the sole director and shareholder of the corporate respondent, Camerlengo Holdings Inc. (“HoldCo”).

In February 1996, Fred and his business partner established Gridd Electrical Services Inc. (“Gridd”), an electrical contracting business that operated through various corporations such as HoldCo. Both Fred and his business partner transferred their family homes to their respective spouses without any consideration. The transfers were facilitated by the same lawyer, and on the same day. Following the transfer, Fred continued residing in the family home, which Mirella occasionally mortgaged to support Fred’s business endeavours.

Fred and Mirella allegedly made the transfer due to concerns about Fred’s potential exposure arising from their rapidly expanding electrical services business, which involved undertaking high-risk projects.

In 2011, financial troubles arose for Fred and to address this, Fred obtained a $200,000 loan through Bluestream International Investments Inc. (“Bluestream”).

Bluestream came under scrutiny from the Ontario Securities Commission (OSC) when its business associate was discovered to be engaging in fraudulent activities, including trading without registration, and unlawfully distributing securities in an investment scheme. In 2018, the OSC issued a disgorgement order against Bluestream on behalf of the defrauded investors, leading the OSC to initiate a lawsuit against Fred, Mirella and HoldCo to recover the loan amount.

The OSC challenged the 1996 transfer of Fred’s interest in the family home to Mirella, alleging that the transfer was made fraudulently, with the intent of avoiding future creditors.

Motion to Strike

Fred and Mirella brought a motion to strike the statement of claim on the basis that the OSC’s pleadings did not disclose a reasonable cause of action. The motion was dismissed, except with respect to the claims of fraudulent conveyance.

The motion judge considered section 2 of the Fraudulent Conveyances Act (FCA), which states:

Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

The motion judge concluded that because Bluestream, and consequently OSC, were not creditors when Fred transferred his interest in the home to Mirella, they did not fall under the category of “creditors or others” per section 2 of the FCA.

Court of Appeal overturns Lower Court Decision

The Court of Appeal (ONCA) overturned the motion judge’s decision, ruling that the law against fraudulent conveyances can still apply to transfers made to avoid potential future debts. Citing IAMGOLD Ltd. v. Rosenfeld, [1998] O.J. No. 4690, the ONCA clarified that a subsequent creditor, one who was not a creditor at the time of the transfer, can challenge the transfer if it was intended to “defraud creditors generally, whether present or future.”

To support the inference of an intention to defraud creditors, the ONCA outlined various “badges of fraud,” such as the debtor’s precarious financial state at the time of the transaction, the existence of family or close relationships between parties, divestment of a substantial portion of assets, and evidence of defeating, hindering, or delaying creditors.

The OSC presented several relevant facts in their plea, which the ONCA found compelling in inferring an intention to defraud creditors:

• Fred transferred the property to his wife without consideration;
• The transfer occurred after 16 years of joint ownership and 4.5 months after incorporating Gridd with his business partner;
• Fred and his business partner used the same lawyer to transfer their family homes to their wives simultaneously;
• The transfer coincided with Fred’s concerns about personal liability from his rapidly expanding high-risk electrical contracting business; and
• Despite the transfer, Fred continued treating the property as his own.

Based on the above, the ONCA found sufficient grounds to support the inference of an intention to defraud creditors, allowing the OSC’s claim to proceed.

Conclusion

The ONCA’s ruling has significant implications for cases where individuals or entities attempt to shield assets from potential liabilities by transferring them to others (such as spouses and children), and it highlights the importance of considering the broader intent behind such transfers when assessing their validity.

It is important to note that during the oral hearing, the respondents attempted to raise an argument about the statute of limitations. However, since this argument was not presented in the lower court, new arguments can only be introduced on appeal with special permission. The ONCA, in this case, declined to grant permission for the introduction of the new argument.

For more information regarding Bankruptcy, Collections, Fraud, and/or Trusts related topics, please contact Hyland Muirhead at Devry Smith Frank LLP at (416) 446-5092 or hyland.muirhead@devrylaw.ca.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.”

This blog was co-authored by Articling Student, Owais Hashmi.

Sources: Ontario Securities Commission v. Camerlengo Holdings Inc., 2023 ONCA 93