A British Columbia creditor sued inside sixty days, and the preference attack needed no proof of intent at all

The situation

A buyer acquired the assets of a specialty commercial printing business in the British Columbia Lower Mainland for $640,000. The business depended on one paper and substrate supplier who was owed $150,000 on an aged account and had stopped extending credit. As in many closings of this kind, the buyer agreed to pay that $150,000 directly to the supplier out of the purchase price at closing, against a release and fresh trading terms, so the business the buyer was acquiring would still have a supplier the following week.

The problem

Forty days after closing, a subcontractor holding a $58,000 default judgment against the vendor discovered the vendor had nothing left to collect against. Rather than petition the vendor into bankruptcy, the subcontractor sued the supplier directly under British Columbia’s own preference statute, the Fraudulent Preference Act. The buyer’s deal team, having handled a similar situation on an earlier Ontario file, assumed the same analysis applied: outside a bankruptcy, no trustee, the claimant would have to prove the vendor intended to prefer the supplier over other creditors — a real burden, and one vendor correspondence does not always supply. On these facts it did not have to be proven at all.

The numbers

Purchase price $640,000, of which $150,000 was paid directly to the supplier at closing and the balance to the vendor. The subcontractor’s claim was $58,000 plus interest and costs. Suit against the supplier was commenced 40 days after the disposition — inside the Act’s 60-day window, the fact that decided which test applied.

The rule that decided it

British Columbia’s Fraudulent Preference Act, R.S.B.C. 1996, c. 164 has an intent-based branch and a no-intent branch, and the two run on different timelines. Section 3 sets the ordinary rule: a disposition by an insolvent person is void as against an injured creditor “if made (a) with intent to defeat, hinder, delay or prejudice creditors or some of them, and (b) to or for a creditor with intent to give the creditor preference over other creditors or some of them.” Proving that intent is the claimant’s burden, and it is not presumed merely because a proceeding was brought promptly.

Section 4 does something the ordinary rule does not. Under the marginal note “Transfers having effect of preference,” it provides: “Subject to section 6, if, without intent, the disposition gives the creditor a preference over some or all of the other creditors, section 3 (b) also applies (a) in a proceeding brought to set aside the disposition within, if there is a document evidencing the disposition registered under an Act, 60 days after registration, or, in other cases, 60 days after the disposition, as against the creditor injured, or (b) if the debtor, within 60 days after the disposition, makes an assignment for the benefit of the debtor’s creditors…” The opening words carry the whole difference from an intent-based regime: without intent. Section 5(1) supplies the test that decides whether a disposition “gives a creditor a preference” for this purpose — not a state of mind, but an outcome: “A disposition is deemed to give a creditor a preference over the other creditors under section 4, if the creditor is given, recovers or is placed in a position to recover payment, satisfaction or security for all or part of the debtor’s indebtedness, greater proportionately than could be recovered by unsecured creditors generally, or on the unsecured portion of the liabilities, out of assets of the debtor left available to judgment.” A creditor paid in full while others recover a fraction has, on that arithmetic alone, received a preference inside the window — no correspondence, no motive, no state of mind required from anyone.

This is a materially different test from the one Ontario runs. Ontario’s Assignments and Preferences Act keeps intent as an element of the claim in every case; s.4(3), under the marginal note “When there is presumption of intention if transaction has effect of unjust preference,” provides only that where a transaction has the effect of a preference and a proceeding is brought within sixty days, it “shall…be presumed, in the absence of evidence to the contrary, to have been made with the intent…” That is a rebuttable presumption — intent is always the ultimate question, and the sixty-day window only shifts who has to produce evidence about it. British Columbia’s within-window rule removes the intent question from the case entirely; there is nothing left to presume or rebut, because s.4 and s.5(1) do not ask what the parties meant, only what the creditor received relative to everyone else.

The closing mechanic that reaches the supplier at all is the same idea in both provinces, and it survived independently in this file: s.6(2) of British Columbia’s Act provides that “in case of a valid sale of property, a payment or transfer of some or all of the consideration by the purchaser to a creditor of the vendor, under circumstances which would render void the payment or transfer by the debtor personally and directly, the payment or transfer, valid as respects the purchaser, is void as respects the creditor to whom it is made.” The sale stands. The payment routed through it to a particular creditor does not, if the underlying disposition meets either branch of the Act — and inside sixty days, the no-intent branch is the one doing the work.

The outcome

The asset sale itself was never challenged. The $150,000 payment to the supplier was declared void as against the subcontractor under s.4 and s.5(1), without any inquiry into whether the buyer, the vendor or the supplier had intended anything of the kind, and the supplier repaid the $58,000 judgment amount plus costs from its own funds. The buyer’s own price allocation was untouched; the exposure landed entirely on the payment route the closing had used.

What it would have cost otherwise

Had the deal team correctly identified the no-intent window at the time of closing, the same commercial objective — restoring the supplier relationship — could have been achieved without routing payment through the purchase price at all: a lower price with the buyer negotiating its own opening terms with the supplier directly, or a holdback released once sixty days had passed and no claim had been filed. Instead, the exposure was discovered only after a stranger to the deal sued, on a test that gave the supplier no good-faith defence to raise once inside the window.

The tell

The tell is a deal team reasoning from an Ontario playbook — where a fast claim only shifts a burden of proof — onto a British Columbia file, where a fast claim removes the intent question from the case altogether. The same closing mechanic, the same sixty-day number, and two different statutes asking two different questions inside it.

Takeaways

• • British Columbia’s Fraudulent Preference Act s.4 and s.5(1) impose a strict, no-intent “effect” test inside sixty days of the disposition: a creditor recovering proportionately more than others is deemed preferred, without any inquiry into motive.
• • Ontario’s equivalent window, Assignments and Preferences Act s.4(3), only presumes intent — a rebuttable evidentiary shortcut, not a substitute for the intent element itself.
• • Outside British Columbia’s sixty-day window, s.3’s ordinary intent test applies and the claimant carries the full burden, the same as in Ontario at any time.
• • s.6(2) reaches a purchaser’s closing-direction payment to a vendor’s creditor the same way Ontario’s s.5(2) does — the sale stands, the payment does not, if the disposition meets either branch of the Act.
• • A creditor cannot rely on good faith or absence of motive as a defence to a claim brought inside British Columbia’s window — the statute does not ask the question good faith would answer.

Sources

• • Fraudulent Preference Act, R.S.B.C. 1996, c. 164 — s.3 (the ordinary intent test); s.4 (the no-intent effect test inside 60 days); s.5(1) (what counts as a preference); s.6(2) (a purchaser’s payment to a creditor of the vendor).
• • Assignments and Preferences Act, R.S.O. 1990, c. A.33 — s.4(3), the rebuttable 60-day presumption of intent, cited for the contrast with British Columbia’s no-intent rule.
• • Treadstone Law — fraudulent conveyance risk when buying a business below value — adjacent, and written to Ontario’s regime; it does not address British Columbia’s separate no-intent preference test, which is the rule this file turns on.
• • Not addressed: whether other provinces run a no-intent effect test comparable to British Columbia’s was not independently verified for this file. Treat the contrast above as specific to British Columbia and Ontario, not as a general statement about every province’s preference statute.