Creditor’s Writ Does Not Extend to Land Held in Trust by Debtor

A recent Ontario court decision examines the interplay between a creditor’s rights and a debtor’s role as trustee of land.
The dispute before the court pertained to certain parcels of lands in Collingwood that were owned by a corporation.  On the advice of a lawyer, and strictly for severance and Planning Act purposes, one parcel was placed in the name of an individual named Michaud as trustee for a corporation, by way of an unregistered declaration of trust.
Unfortunately, Michaud had personal debts; he owed money to a creditor named Coreslab Structures (Ont.) Inc. (“Coreslab”). When Michaud defaulted on his loan, Coreslab registered a writ of execution (the “writ”) against Michaud in his personal capacity.
Meanwhile, certain third parties had expressed interest in purchasing the Collingwood land owned by the corporation.  But when these potential buyers performed a standard search for registered executions, the writ against Michaud came to light.  The writ effectively blocked the sale, since it legally prevented Michaud as trustee from conveying the land he held in trust for the corporation.
Michaud applied to the court to determine whether the unregistered declaration of trust in relation to the lands took priority over the writ that had been registered against him in his personal capacity.
First of all, the court confirmed the legitimacy of the unregistered trust declaration: it was not a manufactured document but rather had been entered into on the advice of a lawyer. Also, while it was true that Michaud was technically a corporate officer of the company for whose benefit he held the lands in trust, he had never been financially involved in that company; it was owned by various other shareholders. Instead, Michaud’s role was limited to that of trustee of the lands.
Next, the court considered Coreslab’s rights as execution creditor.  It referred to the Ontario Execution Act, which provides that a sheriff’s authority to sell lands belonging to an execution debtor such as Michaud specifically includes land that was being held in trust for him.  However, it did not apply to land that was being held by him as trustee for another. Therefore, in its role as execution creditor Coreslab could claim no more than the extent of Michaud’s interest in the land, which in this case was limited by his status as trustee, not owner.
Accordingly, Coreslab’s writ against Michaud could not attach to the lands held by him in trust.  See Michaud v. Coreslab Structures (Ont.) Inc., 2012 (ONSC).