Call us: (905) 366 9700     Email us: info@ontlaw.com

Legal Blog: Bankruptcy

Oct
26
2022

Debt Surviving Bankruptcy

Royal Bank of Canada v. Bedard 2022 Ont CA

The Court overturned an order stating that the debt survived bankruptcy. Although fraud was involved, there were other issues that would affect a survival order and these should be dealt with by the Bankruptcy Court when and if the debtor became bankrupt.

Continue Reading >
Sep
16
2022

Fraudulent Preference

Golden Oaks Enterprises Inc. v. Scott 2022 Ont CA

Trustee in bankruptcy brought an action against people who had received commissions and interest exceeding the criminal rate from a one-person corporation conducting a Ponzi scheme. The Court agreed that the people receiving the commissions had to return these funds because the corporation was insolvent from the start and was using fresh money to pay the commissions. S. 95(1)(b) of the BIA was invoked to justify the return as fraudulent preferences made to non-arm’s length people. For limitations purposes, the Court refused to attribute the individual fraudster’s knowledge to the corporation even though the corporation benefitted from the fraudster’s acts. The Court held that it would be improper to allow people who received criminal rates of interest to shield behind the corporate attribution rule at the expense of others creditors.

Continue Reading >
Sep
12
2022

Costs and Bankruptcy Survival

Yanic DuFresne Excavation Inc. v. Saint Joseph Developments Ltd. 2022 Ont SCJ

Debtor went bankrupt and creditor brought a motion, even after the debtor and trustee had been discharged, that the debt survived bankruptcy under s. 178(1)(d) of the BIA. The creditor was successful and costs of the motion were agreed at $50,000. The debtor argued that the costs should not survive bankruptcy because they were incurred after the bankruptcy. The judge held that if a judgment survives bankruptcy, it would be inequitable that costs would not. Costs are an intrinsic aspect and a consequence of the judgment. Debtor appealed (unsuccessfully) the original motion decision, but not the decision as to costs.

Continue Reading >
Aug
10
2022

Costs and Bankruptcy Survival

Yanic DuFresne Excavation Inc. v. Saint Joseph Developments Ltd. 2022 Ont SCJ

Debtor went bankrupt and creditor brought a motion, even after the debtor and trustee had been discharged, that the debt survived bankruptcy under s. 178(1)(d) of the BIA. The creditor was successful and costs of the motion were agreed at $50,000. The debtor argued that the costs should not survive bankruptcy because they were incurred after the bankruptcy. The judge held that, if a judgement survives bankruptcy, it would be inequitable that costs would not. Costs are an intrinsic aspect and a consequence of the judgment.

Continue Reading >
Jul
01
2022

Fraud Attribution

Assume that shareholders concoct a scheme by which they defraud their corporation and take out money that otherwise would have belonged to it. If the corporation subsequently becomes bankrupt, can its trustee in bankruptcy collect the proceeds of the fraud from the fraudulent shareholders? This issue was decided in Ernest & Young Inc. v. Aquino, a 2022 decision of the Ontario Court of Appeal.

A stack of wood blocks.

Fraud

The corporation is Bondfield Construction Company Limited (and its affiliate, Forma-Con Construction). We will refer to each under the banner of Bondfield. The fraudster shareholder was John Aquino.

Aquino, who was the directing mind of Bondfield, arranged for a false invoicing scheme by which various suppliers rendered invoices to, and were paid by, Bondfield, but provided no actual services. In doing so, Aquino siphoned off tens of millions of dollars from Bondfield.

Continue Reading >
May
02
2022

BIA Undervalue Transactions

Ernst & Young v. Aquino 2022 Ont CA

Shareholders siphoned tens of millions of dollars from two construction corporations, corporations that subsequently went into receivership or bankruptcy. The money was taken by way of false invoicing schemes. The trustee/monitor moved under section 96 of the BIA to have the shareholders repay the money. The shareholders had two major defences. First, they claimed that, at the time they stole the money, the corporations were financially stable and therefore the purpose was not to defeat creditors, just to fraudulently strip assets from the corporations. The court disagreed that the corporations were financially stable at the time. Second, the shareholders argued that s. 96 only applies if the corporations were fraudulent and, in this case, the corporations did nothing wrong, just the shareholders. The court upheld the motion judge’s decision to apply the shareholders’ fraudulent intent to the corporations. It recognised that you cannot do this in a criminal or civil setting (e.g. a fraudulent shareholder cannot bring criminal or civil liability on a corporation unless the corporation benefitted from the action). In a bankruptcy scenario, however, the corporation is just a bundle of assets and the trade-off is between protecting the shareholders or the creditors. The court chose to protect the creditors.

Continue Reading >
Apr
26
2022

Declarations Under BIA – Fraud

784773 Ontario Limited v. Larkin 2021 Ont SCJ

The judge granted a partial summary judgment for the amount that the defendant had admitted he had taken improperly. The judge also issued a declaration that the judgment debt arose out of fraud, embezzlement, misappropriation, or defalcation occurring while the defendant was acting in a fiduciary capacity [for use to fall within BIA s. 178(1)(d)]. The judge acknowledged that some judges had held it was improper to issue such a declaration when there had been no bankruptcy and that other judges had allowed the declaration.

Bank of Montreal v. Mathivannan 2021 Ont SCJ

Motion for default judgment for a debt due. The judge issued the judgment for the debt, but refused to make a declaration that the debt arose out of fraudulent misrepresentation and false pretences [for use to fall within BIA s. 178(1)(e)]. The judge refused the declaration because (i) the plaintiff had not adduced sufficient facts to prove that allegation; and (ii) in any case, because the defendant had not yet become bankrupt, the request was premature.

 

Continue Reading >
Mar
02
2022

Bankruptcy Discharge Exceptions

Alberta Securities Commission v. Hennig 2021 Alta (CA)

A bankruptcy discharge normally discharges all debts, but there are exceptions under section 178(1) of the BIA. The Alberta Securities Commission concluded that the bankrupt had contravened Alberta securities laws, but never indicated that the bankrupt was fraudulent. It required payment of an administrative penalty and costs of the hearing. The court held that this order was not a penalty (for punishment) imposed by a court in respect of an offence; it was merely an administrative penalty to protect the public. Therefore ss. 1(a) did not apply. The court held that the bankrupt was not held to have obtained property or services by false pretences or fraudulent misrepresentation pursuant to ss.1(e) for 3 reasons: he was never held to have been fraudulent, there was no link between the debt and the alleged improper actions, and only the victim of fraudulent behaviour can claim the benefit of the subsection.

Continue Reading >
Dec
01
2021

Bankruptcy Discharge

Cook (Re) 2021 BCSC

A three-time bankrupt applied for a discharge. The British Columbia Securities Commission was, by far, the largest creditor relating to sanctions assessed against the bankrupt for his breach of the Securities Act, breaches that resulted in losses to a number of investors. The court refused to grant any discharge at all. To do so would be contrary to the aims of the bankruptcy system and would bring the system into disrepute. The bankrupt’s inability to pay was a much less important factor than factors such as denunciation, deterrence, and protection of others.

Continue Reading >
Nov
24
2021

Declaration for Survival of Bankruptcy

Yanic Dufresne Excavation Inc. v. Saint Joseph Developments Ltd.  2021 Ont SCJ

Sub brought a motion to vary a default judgment that it had obtained against the general contractor and 2 directors. Although there were many allegations regarding breach of trust in the statement of claim, the original judgment was for a monetary award only because none of the defendants had been bankrupt at the time. Because the statement of claim had raised the issue of a breach of trust, the judge allowed further evidence as to that breach and, based on that evidence, granted an order that the judgment survived the defendant’s bankruptcy.

Continue Reading >
Download our free checklist:

“10 Questions to ask before hiring a law firm”

DOWNLOAD

Speigel Nichols Fox LLP