Me Jean-Yves Simard, Partner
Me Camille Chapdelaine, Associate
A recent judgment by the Superior Court, Trustee of Budker, 2025 QCCS 229, illustrates the considerable challenge faced by a bankruptcy trustee seeking to have a trust deed declared unenforceable against the creditors of a bankrupt. The case recalls the fundamental principle of the separation and autonomy of the trust patrimony.
Vladimir Budker emigrated to Canada in 1998 with his wife and children. In 2002, he obtained his real estate brokerage license. Following the advice of his advisors, he created the Budker Family Trust in 2009, where he serves as trustee alongside his wife and a friend, Vasserman. The beneficiaries of the Trust are Budker, his spouse, and their children. The Trust primarily invests in real estate projects that it finances through private loans, while Budker continues his real estate brokerage practice. In 2015, he sold the family residence to the Trust, which paid the fair market value for it.
Starting in 2016, a Mr. Marmaros extended loans to the Trust. In 2018, these loans were consolidated and assumed personally by Budker. Unpaid, Marmaros sued Budker and obtained a judgment in July 2022 for $3.5 million. Budker filed a bankruptcy proposal that was rejected by the vote of Marmaros, practically the sole creditor, leading to Budker’s bankruptcy in January 2023.
On the instructions of Marmaros, the trustee filed an application based on articles 1631 of the Civil Code of Quebec and 95 of the Bankruptcy and Insolvency Act, requesting the Court declare the 2009 trust deed, as well as any transaction involving the Trust, unenforceable against the trustee. The trustee argued that the Trust’s constitution was made in fraud of the creditors’ rights and that Budker used it to personally benefit himself, mingling the Trust’s assets with his own and rendering himself personally insolvent.
The Court recalled that, to succeed, the trustee had the burden of proving the following elements:
- A certain debt predating the contested juridical act;
- A prejudice caused to the creditors by this act;
- The debtor’s fraudulent intent;
- The bad faith of the debtor’s co-contractor.
The Court recalls that the Civil Code contains presumptions of fraud in articles 1632 and 1633 C.c.Q. However, these presumptions only apply when it is demonstrated that the debtor is insolvent at the time of the act or becomes insolvent as a result. The trustee had no evidence to offer regarding Budker’s solvency at the time of the Trust’s creation in 2009.
The trustee argued that the fact that Budker was both a trustee and a beneficiary of the Trust demonstrated the mingling of assets. However, article 1275 C.c.Q. allows such a situation as long as one of the trustees is neither the settlor nor a beneficiary. Even though the evidence showed that the third trustee, Vasserman, played a very subdued role and that “(translation) Budker is the master of the game. He decides everything.“, the trustee’s argument was rejected.
In short, the Court carefully examined the evidence and concluded that it did not establish that the Trust was merely a facade or that Budker was abusing it. Indeed, Budker actively participated in the management of the Trust, but according to the Court, this did not necessarily mean that Budker was seeking to mingle his personal assets with those of the Trust. The legal structure of Budker’s businesses and the financial transactions raised at trial were not sufficient to conclude that the Trust was a mere facade intended to defraud creditors.
The Court therefore dismissed the trustee’s application.
This judgment, based on the Court of Appeal’s decision in Levasseur v. 9095-9206 Québec inc., 2012 QCCA 45, reiterates that the burden of proof is very heavy for creditors (or trustees) when it comes to declaring a family trust unenforceable against them, particularly regarding the debtor’s intent to defraud or the bad faith of their co-contractors. The presumptions of fraud provided in articles 1632 and 1633 C.c.Q. can be of assistance, but for them to be applicable, very convincing evidence must be presented.
The trust remains a recognized concept in the Civil Code of Quebec: it is an autonomous patrimony distinct from that of the settlor, the trustee and the beneficiary. However, the trust is not immune to claims by the creditors of the settlor, trustee or beneficiaries, if the circumstances of its creation or its use demonstrate fraud against creditors. The Budker case illustrates that this demonstration is not always easy. More significantly, it shows that a family asset protection trust can be effective, provided the rules of the game are respected.
[1] Marmaros v. Budker, 2022 QCCS 2718, appeal dismissed on motion: 2022 QCCA 1620. Marmaros does not claim that the Trust is its debtor after the 2018 debt consolidation.
[2] The trustee in bankruptcy seems to have a very long reach: indeed, article 1635 C.C.Q. seems to allow the trustee to attack transactions that are distant in time (14 years in this case), provided he acts within the year of his appointment.
