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Legal Blog: Collections

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.

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Oct
01
2022

Renewed Certainty

Posted in Collections

The Mortgages Act contains many provisions governing the relationship between mortgagors and mortgagees and, additionally, some provisions protecting purchasers of property under power of sale. However, can a breach of a provision protecting a mortgagor create havoc with what would normally seem to be an ordinary real estate transaction? In 2544176 Ontario Limited v. 2394762 Ontario Inc, a 2022 decision of the Ontario Court of Appeal, an application judge said yes; the Court of Appeal said no.

A hand stopping a row of wood blocks from falling over.

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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.

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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.

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Sep
12
2022

Judicial Sale

Bank of Nova Scotia v. Carmichael 2022 Ont SCJ

A judgment creditor attempted to obtain an order for judicial sale rather than using the process for a sheriff’s sale under the Execution Act. The creditor led no evidence of special circumstances, other than its contention that a judicial sale was faster, easier, and less costly. The judge dismissed the motion, for the same reasons as in RBC v. Wong: no special circumstances, no relief.

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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.

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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.

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Jun
01
2022

Collection Costs

Posted in Collections

A wronged plaintiff brings an action against a defendant and after three years, with money spent in costs, time wasted, indecision, and heartache, the plaintiff is finally successful and obtains a monetary judgment. The defendant, now the judgment debtor, refuses to or cannot pay. After another year or three of collection proceedings, the plaintiff, now the judgment creditor, finally collects on the judgment. However, when it seeks compensation for its significant collection costs, a judge rules that the court only has jurisdiction to allow collection costs for some very specific and limited categories, which amount to almost nothing. Worse yet, the court tells the creditor that, in effect, it should have settled for a lesser amount long ago. This is what the motion judge decided in MCAP Service Corporation v. LPIC v Mangat (third parties), a 2020 Ontario Superior Court of Justice decision.

As creditor’s counsel, this decision did not please us. We applied for and received leave to appeal it. Ultimately, the Divisional Court heard the appeal and, in 2022, rendered its decision in Lawyers’ Professional Indemnity Company v. Mangat.

A calculator on a table.

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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.

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Apr
28
2022

Lawyer’s Undertaking

Bridgepoint Financial Services Limited Partnership v. Galamini 2021 Ont SCJ

The plaintiff’s lawyer signed an undertaking that, upon receiving settlement funds, a lender paying money to the plaintiff to assist in the action would be repaid from the settlement money. Settlement was made, the lawyer received the funds, and then the lawyer forgot to pay the lender. The judge held that the lawyer was personally liable for the failed undertaking, but was only liable for the debt due on the day that it should have been paid. The interest on that debt was at the prejudgment interest rate, not the contract rate of 26% per year.

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