Mortgage Replacement Scheme Held Valid

An interesting mortgage transaction has been declared valid, despite an appeal to Supreme Court of Canada. Taylor Ventures (TV) owned a development property. Just before it went bankrupt, it fraudulently conveyed the property to another company owned by one of the property’s beneficial owners. That person discharged a commercial mortgage but replaced it with a similar mortgage, which in turn was assigned to another company also related to the new owner. Although the initial fraudulent conveyance by TV was declared void, the Receiver asked the Court to also declare the mortgage void or unenforceable. The B.C. Court of Appeal declined; it held that, by buying-back a mortgage that it had granted to a third party acting in good faith, the recipient of the fraudulently conveyed property – despite guilty intent and wrongful control – could nonetheless enforce its own interest in it. The Supreme Court of Canada dismissed the application for leave to appeal that decision. See Taylor Ventures Ltd. (Trustee of) v. High Meadow Holdings Ltd., 2008 (S.C.C.)