Attempting to Pull the Wool Over a Judgment Creditor's Eyes

The recent Alberta Court of Appeal decision 1007374 Alberta Ltd v Ruggieri, is an interesting case that affirms an important trial court decision on fraudulent conveyances and oppression. While not a dramatic reframing of the law in these issues, it does highlight the willingness of the courts to sanction those who attempt to "creditor-proof" their companies to escape judgment enforcement.

The facts are that in 2011, the respondent in the Court of Appeal decision had successfully sued A. Ruggieri Engineering Ltd. ("Ruggieri Ltd."), a corporation solely owned and operated by Antonio Ruggieri. Although there was no appeal of the decision by the defendant corporation, by the time the respondent attempted to enforce the judgment he learned that the appellants had filed for a name change. They had also granted general security agreements and promissory notes in favour of Antonio Ruggieri and another corporation of which Mr. Ruggieri happened to be the sole director. Ruggieri Ltd. also issued promissory notes to Antonio Ruggieri and to the same corporation. Effectively, Antonio Ruggieri had "creditor-proofed" his company Ruggieri Ltd. Or so he thought.

The respondent sued again, this time on the basis that Ruggieri's actions were intended to thwart his efforts to collect on the earlier judgment. At the trial level, Justice Wilson ruled that Mr. Ruggieri had "simply changed hats" in his actions to avoid the creditors. The court held that the five part test under the Statute of Elizabeth (commonly known as the "Statute of Frauds") for fraudulent conveyances was met, and also held that oppression, unjust enrichment, and unlawful conspiracy had been made out. In addition to awarding judgment against Mr. Ruggieri personally (as well as the new corporations) for the full amount of the earlier debt plus interest, Justice Wilson also awarded $100,000 in punitive damages, noting that Mr. Ruggieri's actions were dishonest, deliberate and amounted to an obstruction of justice. He also found that Mr. Ruggieri had given untruthful evidence.

At the Alberta Court of Appeal, the appellants challenged the trial judge's conclusion on each cause of action. The Court of Appeal focused primarily on the issue of oppression under Alberta's Business Corporations Act. The Court agreed with the respondent that the facts at play showed the appellants had set out on a deliberate course to strip the judgment debtor of its assets and thus oppressed the respondent in his capacity as a judgment creditor of this company.

The Court noted that in a small and tightly held corporation, where the sole director and officer exercises power in a manner that is unfairly prejudicial or dismissive, the director can be held personally liable. The Court of Appeal also upheld the award for punitive damages. The Court of Appeal did not deal with the fraudulent conveyances and the Statute of Elizabeth question, thus opening the door to potential further considerations by the Court of Appeal in the future.

The Alberta Court of Appeal decision is a useful resource for counsel dealing with clients or opposing parties who attempt to "creditor-proof" their companies by stripping corporations of their assets or encumbering them with debt. Significant penalties, including punitive damages, can be assessed to those who partake in such action.