Alberta Court sees through judgment debtor’s efforts to hide personal funds in shell corporations

Case Reporter

Written by Ty Schmidt

A critical aspect of a functional legal system is the court’s ability to enforce its judgments. Each province has legislation that enables and outlines this authority, such as the Executions Act in Manitoba and the Civil Enforcement Act in Alberta. Despite that clear authority, there are times that an unsuccessful litigant will attempt to thwart the system and shirk their obligations. In the recent decision of Vaillancourt v Carter(2022 ABQB 603), a judgment debtor hid his funds in the accounts of shell corporations and then filed for bankruptcy in an effort to avoid paying the court. The Alberta Court of Queen’s Bench was not fooled, and its decision highlights the fact that courts will see through fraudulent strategies to escape fulfilling garnishee summons.

Plaintiff Ms. Vaillancourt first obtained judgment against Defendant Mr. Carter in 2016. Despite repeated attempts to enforce that judgment, the debt remained unfulfilled. Most recently, Mr. Carter tried to “judgment proof himself through the strategic use of a corporation, a partnership, and a trust.”[1] Ms. Vaillancourt issued garnishee summons to those entities (“the Garnishees”) for the amounts owed to her by Mr. Carter. After an initial period with no response, the Garnishees eventually responded by denying any obligation to Mr. Carter and refusing to pay any monies into the court pursuant to the summonses.[2] This was a direct violation of the Civil Enforcement Act.[3]

Armstrong J began his analysis by stating that these corporate entities and their obligations to Mr. Carter are analogous to the obligations that banks owe to their account holders, and that a bank account is subject to garnishment.[4] Evidence showed that Mr. Carter made multiple transfers of his personal assets to the Garnishees prior to receiving the garnishee summons, and that there was “no apparent purpose for those transactions other than to thwart the authority of court judgments and evade payment of just debts.”[5] This conclusion was strengthened by the fact that Mr. Carter has repeatedly been found to be dishonest in his past dealings with the court and with his trustee in bankruptcy.

Between the time of the first summonses being served and Mr. Carter declaring bankruptcy, the Garnishees made payments in excess of $1 million to Mr. Carter. After he declared bankruptcy, the payments previously made to him were instead recorded as to his two sons. Based on his previous dishonest conduct and the uncanny timing of this change, the Court inferred that these payments were actually for the benefit of Mr. Carter.[6] Returning to the bank analogy, Armstrong J. brought all the facts together and wrote that since “Mr. Carter treats the Garnishees like his own personal bank account, so too will the law treat them like a bank account”.[7] Accordingly, the Garnishees were made jointly and severally liable for the entire judgment debt of $1.6 million.

[1] 2022 ABQB 603 at para 1.

[2] Ibid at para 2.

[3] Ibid at para 25.

[4] Ibid at para 27.

[5] Ibid at para 28.

[6] Ibid at para 31.

[7] Ibid at para 34.

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